Why Kohl's (KSS) Stock Is Up Today

Kayode Omotosho /
2023/12/11 11:14 am EST

What Happened:

Shares of department store chain Kohl’s (NYSE:KSS) jumped 7.3% in the morning session after retail stocks soared in solidarity with Macy's. Reuters reported that Arkhouse Management and Brigade Capital, an investor group, made a $5.8 billion offer to take Macy's private. The proposal, submitted on December 1, 2023, values Macy's at $21 per share, representing a 20% premium from the company's closing price of over $17/share on Friday, December 8, 2023. The offer, if accepted, would involve acquiring the Macy's stock that the investor group does not already own. The potential acquisition of Macy's is instilling confidence that struggling retailers in general and department stores in particular still hold value, whether it's because of their brand, real estate footprint, or business model.

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What is the market telling us:

Kohl's's shares are quite volatile and over the last year have had 38 moves greater than 5%. In context of that, today's move is indicating the market considers this news meaningful but not something that would fundamentally change its perception of the business. 

The previous big move we wrote about was 20 days ago, when the stock dropped 5.5% on the news that the company reported third quarter results with same-store sales and net sales (excluding credit card operations revenue) falling below Wall Street's expectations. Gross margin and expense control were better, leading to a nice EPS beat vs. analysts' expectations. Guidance was also mixed, with the full year outlook lowered for same-store sales but raised for EPS. However, with the full year operating margin maintained, the EPS raise is likely from non-fundamental factors such as lower interest expense or a lower tax rate. Lastly, management commentary shows that the company could face further choppy topline results in the near term. "Our strategies to reposition Kohl's for improved sales and earnings performance remain in the early stages." Zooming out, we think this was a mixed quarter with some positives and some negatives.

Kohl's is up 5.5% since the beginning of the year, but at $25.94 per share it is still trading 25.4% below its 52-week high of $34.76 from February 2023. Investors who bought $1,000 worth of Kohl's's shares 5 years ago would now be looking at an investment worth $411.60.

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