Taking Profits On Kohl’s (NYSE: KSS) Stock

Department store retailer Kohl’s Corporation (NYSE: KSS) shares have made a buoyant recovery nearly doubling since being featured in our November 9, 2020, MarketBeat Original article “Kohl’s NYSE: KSS Stock is a Sleeper Buy” The migration to digital has certainly improved the sentiment in the shares while the distribution of COVID-19 vaccines is lifting industries hardest hit by the pandemic. However, shares may have gotten ahead of itself as the vaccine distribution may pose a sell-the-news reaction in 2021 as investors realize the upside may be priced in. Additionally, Kohl’s has stated their top strategy is to continue to invest in casual, athleisure, toys and outdoor products based on pandemic spawned trends. This may be a rearview mirror strategy once herd immunity accelerates a return to normalcy which means back to the office and business wear, not sweat pants. Prudent investors who took a position in the shares may want to look to ring the register while shares are still riding the holiday froth at opportunistic exit price levels.

Q3 FY 2020 Earnings Release

On Nov. 17, 2020, Kohl’s released its third-quarter fiscal 2020 results for the quarter ending October 2020. The Company reported non-GAAP earnings-per-share (EPS) profit of $0.01 excluding non-recurring items versus consensus analyst estimates for a loss of (-$0.44), beating estimates by $0.45. Revenues fell (-14%) year-over-year (YoY) to $3.98 billion beating the $3.85 billion consensus analyst estimates. Comparable store sales fell (-13.3%) YoY in the quarter. The Company paid off its credit revolver and ended the quarter with $1.9 billion in cash.

Conference Call Takeaways

Kohl’s CEO, Michelle Gass, provided color on the third quarter that was challenged early on with slow back-to-school sales due to COVID-19 effects in August but saw sales rebound sharply in September and October. The home and toys business had strong positive sales growth as well a Active and Beauty segments. The Company plans to drive awareness of digital to curbside contactless curbside pick-up services. The Company is doubling the number of stores carrying incremental inventory to fulfill digital orders. Kohl’s seeks to be the “most trusted retailer of choice for the Active and Casual lifestyle.” It aims to bolster Active from 20% to 30% of total sales which include active apparel, athleisure, footwear, accessories and outdoors. Store space for Active will increase by nearly 20% along with the launch of the Company’s private athleisure brand FLX in March 2021. The Champion brand NYSE: HBI grew 95% YoY in Q3. The demand in outdoors has led the Company to offer Columbia and the full online catalog of Lands’ End products with the target of doubling the number of stores offering Lands’ End in 2021.

The Omnichannel Customer

Digital has grown 40% in the past five years but still represent low single-digit penetration of the business. COVID-19 has accelerated the shift to digital as digital sales comprised of 32% of total sales for the quarter, up 25% YoY. However, nurturing the omnichannel customer has proved to be most effective. CEO Gass pointed out, “Our omnichannel customer is 6X more productive than a digital only customer and 4X more productive than a store-only customer.” The strategy model is to bolster servicing the active, casual and wellness needs of the family.

Rearview Mirror Strategy?

The Company performance was impressive. However, the strategy to literally place all eggs in one basket based on pandemic spawned trends may be overreaching especially with the rollout of COVID-19 vaccines. The pandemic spurred trends in athleisure and casual wear from stay-at-home mandates as well as outdoors and toys. Is Kohl’s chasing lifestyle trends from a rearview mirror perspective? Pandemic inspired trends were forced upon consumers due to circumstances that may dissipate as mass vaccine distribution accelerates a return to normalcy (and the office), which equates to less (not more) stay-at-home and recreational activities. Investors who don’t want to take chances may want to ring the register at opportunistic exit price levels to lock in profits and scale down exposure.

 KSS Opportunistic Exit Levels

Using the rifle charts on the monthly and weekly time frames provides a broader view of the landscape for KSS stock. The monthly rifle chart formed a stochastic mini pup through the 20-band as shares spiked through the monthly 15-period moving average (MA) at $30.34. This was driven by the monthly market structure low (MSL)  buy trigger above $22.61. The weekly rifle chart rocketed higher on the stair step mini pups as shares take a rest just under the $40.44 Fibonacci (fib) level with weekly upper Bollinger Bands (BBs) at the $42.59 fib. Shares have gone literally straight up and moved too far too fast as a reversion back to the monthly 15-period MA at $30.34 is highly probably. Prudent investors can look to ring the register at opportunistic exit price levels ranging from the $46.96 fib to the $36.91 fib range with a profit stop at $35.66 to sidestep the monthly channel tightening. Prudent investors should always consider cashing in some profits into strength, not the other way around chasing exits during weakness.