Wisconsin-based Kohl's Corp KSS is looking for an option to take itself private, according to The Wall Street Journal. Shares of this department store chain consequently dropped 5.86% on Jan 8.
Per sources, Kohl’s, which has about 1,200 stores nationwide, is planning to hire an investment bank to look for other options, apart from selling to a private equity firm. The company’s board might discuss the options in detail this week.
We note that Kohl’s is struggling since the past many quarters to boost its sluggish top line. Lower spending on apparel and accessories and a general slowdown in consumer spending is hurting sales at department stores. Weak sales trends and an unseasonably warm winter took a toll on revenue and earnings, leading department store stock prices to tumble along with investor sentiment.
In order to drive its comparable store sales, Kohl’s has been focusing on its new strategic initiative, “Greatness Agenda”, an initiative which began in the first quarter of 2014 to help the company increase transactions per store and sales. Though this initiative is leading to positive comps but the rate of growth in each quarter is declining, which remains a concern over the near term.
Besides threat from online competitors and changing consumer tastes, the company also faces rising apparel costs and declining gross margin. Apparel cost inflation is resulting in higher costs regularly. In fact, the company continues to expect apparel cost inflation in fiscal 2015. Moreover, Kohl’s is incurring higher store expenses associated with the rollout of beauty initiatives and services like Buy Online, and Pick Up In Store to all. The company is planning higher investments in the areas of active, premium electronics, entertainment and licensing and cosmetics. Kohl’s also expects to continue to invest in technology and capacity to further accelerate its improving omni-channel experience. While the initiatives will boost sales over a period of time, it will create gross margin pressure in the near term.
Kohl’s Corporation remains cautious about its fiscal 2015 outlook due to a general slowdown in consumer spending. As a result, Kohl’s did not provide any guidance in its third quarter fiscal 2015 conference call in November. However, it had earlier expected fiscal year earnings in the range of $4.40 to $4.60 per share.
Therefore, an attractive buyout offer, if it comes, might lure Kohl’s shareholders.
Kohl’s carries a Zacks Rank #3 (Hold).
Better-ranked stocks in the broader retail sector include Abercrombie & Fitch Co. ANF, Vera Bradley, Inc. VRA and Ascena Retail Group Inc. ASNA. All of them sport a Zacks Rank #1 (Strong Buy).
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