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The retail sales segment of the economy continued its dismal performance in January. Overall, same-store sale gains in January were the weakest for a January period since Thomson Reuters began publishing data in 2000.In a classic through-the-looking-glass reaction, the market has chosen to view the report as positive, as sales did not decline as much as securities firms' analysts had expected. As a result, stock prices for many of the retailers have actually increased.
Wisconsin-based Kohl's Corporation (NYSE: KSS) reported that January same-store sales had declined 13.4%. Total sales for the low-end department store dropped 9% for the month. Nonetheless, the company said that the month wasn't nearly as bad as they and analysts (who had expected a decline of 15.4%) had expected.
Company CEO Kevin Mansell said in the release that Kohl's was well-positioned from an improved inventory management position to transition to the spring buying season. As a result, KSS is on the upside today, increasing more than 3% and is now trading at $33.18
KSS has traded in the range of $24.28 to $56 a share over the last 12 months. The stock has recovered almost 25% from the low reached in mid-November.
The outlook for retailers is even murkier at this point than was the case in December. With the continued scarcity of credit for all sectors of the economy, retailers will be finding it even more difficult to borrow needed cash for operations, including inventory.
As banks squeeze retailers, only the fit will survive as they run out of cash. Survivors will be those retailers with strong balance sheets and effective inventory management practices. It is expected that in 2009 and 2010 over 50,000 stores nationwide could be forced to close by stronger competition.
With more than $675 million in cash on hand and a current ratio of nearly 2, Kohl's is among the strongest retailers from a balance sheet perspective. The company has a long-term debt-to-equity ratio of about 32. Trading at a P/E of 13.5 and a price to sales ratio of 0.89, the stock is fairly priced at the current time.
Kohl's Corporation bonds have performed on a relatively consistent basis the past twelve months. Kohl's 6.25% bonds due in 2017, for example, are trading today at a price of 95, producing a yield-to-maturity of 7.1%. Rated BBB+ by Standard and Poor's and Baa1 by Moody's, the bonds carry minimal risk while delivering a decent return.
This article was written by Jamie Dlugosch, contributor to InvestorPlace.com.
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Reader Comments (Page 1 of 1)
2-07-2009 @ 10:42PM
davis10oregon1 said...
A thriving firm in the middle of this economic downturn, there may be many that are doing equally as well. While some others are in a discharge or layoff mode of their employees, this one has continued it`s rapid expanion and into new markets as well.
Are there lessons to learn from their management team? Applicable to some
troubled ones on a certain front.
2-27-2009 @ 11:21AM
Mia said...
Do not buy Kohls stock. Poor customer service persists from Mr. Mansell, the CEO's office down through store management. Customer's complaints go un-addressed, many customers complain about the three-tier sales promotions (10, 20 or 30% off) as unfair and discriminatory. Store is overcrowded and hard to navigate for disabled using wheelchairs. Clearance racks are filled with junk, looks like stuff goodwill wouldn't even accept.