Kohl's is a know-thy-customer case study

Wall Street's luke-warm stance toward the retail sector should not prevent you from considering Kohl's Corporation (NYSE: KSS) as a retail play.

Kohl's has successfully broadened its offerings to the point where it is now a leading, moderately-priced retail chain. Kohl's offerings in apparel, shoes, accessories, cosmetics, home furnishings and housewares now hold their own against primary competitor JC Penney Company, Inc. (NYSE: JCP).

Further, regional market adaptations of store inventory keep KSS in-tune with what consumers want in a particular geographic area. Also, a computerized mark-down optimization program is likely to improve margins for clearance items/lines: there's no sense cutting the price of an item before a store has to, in order to sell it. Not surprisingly, analysts' channel checks consistently report a department store chain that knows what its customers want, and that prices items fairly, in well-run stores.

Also, look for Kohl's to slightly expand its customer base, but its target market of married women ages 25-50 should continue to drive impressive same store sales gains. Kohl's has about 820 stores and expects to have 1,200 by F2011. The Reuters F2008/F2009 EPS consensus estimates for KSS are: $3.64 to $4.22.

The qualifiers? As always, analysts are watching the consumer discretionary spending statistic in light of continued elevated gasoline prices, and a possible slowing U.S. economy. Hence, if gasoline sails past $4 per gallon in 2008, it undoubtedly hurts Kohl's results. But absent that scenario, look for Kohl's to remain a leader in its segment. KSS's modest p/e of 13 also lowers the stock's risk/return ratio.

The First Call mean rating for KSS is: Buy. [25 firms.] Mean 2007 target: $71.00. [high: $103, low: $47.]

Stock Analysis: Kohl's is a moderate-risk stock not suitable for low-risk investors. Don't buy Kohl's shares if your portfolio already contains an adequate retail component. Investors with an investment horizon longer than 2 years should be rewarded from KSS's shares. Sell / Stop Loss if you were to consider buying this stock: $37.