Kohl’s (NYSE: KSS) hits the skids, but there may be a chance for recovery

Many brick-and-mortar-based retailers have tanked in recent years, as competition from online players such as Amazon (NASDAQ: AMZN) has destroyed their market share. 

And it’s likely to get worse. E-commerce accounts for just 16% of US retail sales, leaving plenty of room for growth.

Department store chain Kohl’s (NYSE: KSS) stands as Exhibit A among the fallen. Year-on-year sales have dropped for 12 straight quarters, including 9.4% in the latest one.

The stock has plunged 84% over the past three years. That’s even worse than drops for industry laggards Macy’s (NYSE: M) at 42% and Target (NYSE: TGT) at 49%.

Inflation has taken its toll on retailers. But the struggling companies have made mistakes of their own, too. Kohl’s suffered from cutting its fine jewelry offerings, its petite-size clothing collection and private label brands. 

At the same time, it introduced Sephora cosmetics and Babies “R” Us shops inside its stores. While those new options attracted some new and younger customers, many older ones objected. Unkempt displays also have turned off shoppers.

Dividend plunge, sales seen lower

Kohl just sliced its dividend by 75% and predicted that overall sales will decrease 5% to 7% this fiscal year, with comparable sales falling 4% to 6%. The comparable sales prediction was much worse than analysts’ forecast of a less-than 1% dip, according to FactSet. Kohl projected earnings per share of 10-60 cents this year, compared to analysts’ prediction of more than $1.  

Kohl’s poor performance has forced it to make cut backs. It recently announced that it’s closing 27 of its more than 1,150 stores and getting rid of about 10% of its corporate workforce, or less than 400 positions (some are unfilled).

The company appears to be listening to its critics. It has put jewelry back into 200 stores, is increasing its petite-size clothing items and has brought in more private-label goods.

Kohl’s appointed a new CEO in January: Ashley Buchanan. He led a turnaround as CEO of arts-and-crafts retailer Michaels and previously spent 11 years as an executive at Walmart. Now the question is whether he can succeed at Kohl’s. 

Morningstar analyst David Swartz thinks investors have overreacted to the company’s woes. “Despite its problems, Kohl’s has strengths, including its reputation for value, its partnership with Sephora (comparable sales growth of 13% in the last quarter), its loyalty program of more than 30 million members, substantial real estate ownership, and free cash flow generation,” he said.

So while Kohl’s is wounded, it may not be destroyed.