Kohl's (KSS) Holiday Results Prove Death of Retail Greatly Exaggerated

Shares of Kohl's Corp. (NYSE: KSS) rallied 5.4% Monday after the department store reported strong Holiday 2017 sales, driven by online activity and store traffic.

Kohl's announced that comparable sales for November and December 2017 combined increased 6.9% over the same period last year. This easily beat the consensus of +0.4%. Kohl's comps were also the strongest among department store peers.

Amid the stronger sales, Kohl's said it now expects fiscal 2017 diluted earnings per share, ex-items, $3.98 to $4.08, compared to its prior guidance of $3.60 to $3.80 and the consensus of $3.79.

CEO Kevin Mansell said all lines of business and all regions reported positive comp sales during the holiday period.

Mansell said growth in digital demand "accelerated significantly" and the company experienced positive sales in stores driven by stronger traffic.

Cowen analyst Oliver Chen said they were "pleased" with the results, which significantly outperformed both Cowen's and Street's expectations. Chen said the strong holiday sales were a result of continued store and digital investments, improved traffic, better inventory management, and an overall strong macro-economic backdrop giving consumers confidence. In addition, they believe KSS is a beneficiary of its off-mall physical store footprint which is more convenient for customers to visit.

"While we are encouraged by strong holiday results and near-term momentum, we believe KSS needs to continue to improve the in-store experience, invest in digital and omni-channel, expand partnership with AMZN (covered by John Blackledge), and continue to reduce its square footage," Chen commented.

The analyst also views Kohl's as one of the biggest beneficiaries of tax reform in their coverage universe. This will have management consider partially re-investing into store operations and labor, with the remainder increasing capital returns, he commented.

Mr. Mansell will deliver a keynote presentation on Tuesday, January 9 at 12 pm ET at the 2018 ICR Conference in Orlando, Florida.

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