Kohl's (KSS) to Report Q3 Results: Will the Retailer Continue Declining?

Kohl’s KSS will report its third quarter results before the market opens on Tuesday, November 19. The retailer has seen its shares decline over 13% in 2019 but has outperformed the broader regional department store market’s over 27% fall.

Many retailers that have been slow to adapt to the contemporary market have ended up in bankruptcy, as they become displaced by the new era of shopping. Kohl’s is a major department store retailer that has been trying to refresh its brand as the retail market scrambles to better compete with the digital marketplace.

Kohl’s Looks to Drive Traffic

With more consumers ditching malls and department stores for more convenient online shopping on Amazon AMZN, Kohl’s is left with the daunting task of reinventing itself and providing attractions than can pry consumers away from the digital marketplace. Kohl’s famously undertook the “if you can’t beat them, join them” mantra when it partnered with Amazon to serve as a return location for packages bought on the e-commerce giant's website.

Kohl’s formed the relationship with Amazon to drive foot traffic in its stores with a handful of Kohl’s stores. The performance the company saw in the trial run prompted a nationwide rollout in all of its 1,150 stores. Both geolocation foot-traffic analysis and anonymized credit card data showed a big uptick in consumers visiting Kohl's stores following the implementation of the program.

Kohl's CEO, Michelle Gass, spoke on how mutually beneficial the partnership was, saying “This Amazon partnership, really does take advantage of the assets of the company. We gain the traffic; Amazon creates a great customer experience.” The success with Kohl’s partnership also led to Amazon partnering with additional retailers for package pick-up and return sites.

The world’s largest retailer, Walmart WMT, also saw the potential in its vast warehouse footprint. The company implemented its buy online, pickup in-store feature, which has become a pillar of Walmart’s online presence. It provides consumers the same satisfaction of online shopping while offering free shipping without an annual membership; the service also gets more people in its stores. If Kohl’s can see similar success with the utilization of its warehouse space, then it would be a much-needed boost.

Moving Forward

No one knows quite yet the exact number of people stopping to shop in Kohl’s after returning their Amazon purchase. In addition, helping Amazon with its customer service is risky as it might just steer consumers even more towards the very company that is causing the decline in the retail sector.

Not knowing the exact benefit Kohl’s is receiving from the partnership while its comp sales and net sales continue to fall may not be a formula for success. However, same-store sales that had been negative during the first half of the second quarter turned positive in the last six weeks, coinciding with taking the returns program national. The positive swing in comp sales may indicate the success of the partnership and investors should pay close attention to that metric in the upcoming report.

Our consensus Q3 estimates forecast net sales to pop 0.46% to $4.65 billion and for earnings to decline 14.29% to $0.84 per share. Comp sales are estimated to come in at 0.5%, and Kohl’s is predicted to add 73 more stores from the previous quarter. Looking ahead to fiscal 2020, estimates call for a top-line fall of 1.88% to $19.85 billion and a 6.79% drop in earnings to $5.22 per share.

Bottom Line

Kohl’s is in the middle of a restructuring effort that it hopes can help it better compete in the modern retail market. The contraction that has hit the retail sector, and especially department stores, has driven Kohl’s forward multiple to discounted levels. Depending on what next week’s report indicates, the company may be seen as a value stock that is in the middle of a come-up or just another department store destined to succumb to the retail apocalypse.

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