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Kohl’s Corp. is getting a boost from its partnership with Amazon.com Inc., but Jefferies analysts still expect same-store sales and margins to decline due to weakness in key categories like women’s and children’s.
Jefferies downgraded Kohl’s KSS, -0.24% shares to hold from buy and cut its price target to $52 from $65.
Kohl’s announced in April 2019 that it had expanded its partnership with Amazon AMZN, -0.14% such that it will accept returns at all 1,150 Kohl’s locations. Kohl’s also sells Amazon merchandise at select locations.
Even with the partnership, Kohl’s cut its guidance just as the holiday season was kicking off.
Kohl’s also announced a partnership with Planet Fitness Inc. PLNT, +2.09% in March 2019, with the health club chain signing on to open 10 fitness stores adjacent to Kohl’s locations.
“We like management’s traffic-driving initiatives, partnering with Amazon and Planet Fitness, but Kohl’s results continue to be muted, regardless of the multiple self-help initiatives in place,” Jefferies analysts led by Randal Konik wrote.
“Active, men’s and digital have been strong, but we believe momentum at competitors such as Target is likely to continue to nip at Kohl’s heels.”
Moreover, Jefferies analysts don’t think strength in the active category can offset weakness in core categories. Women’s and children’s accounts for 41% of Kohl’s sales.
“Until we see an inflection in business trends, competitive pressures ease, and a clear ROI from the Amazon partnership and other investments, Kohl’s shares will have trouble seeing multiple expansion,” Jefferies said.
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“Positive catalysts have dwindled, visibility is low, and risks are rising.”
Kohl’s stock has slipped 0.2% in Tuesday trading, but have fallen 26.6% over the last year. The S&P 500 index SPX, -0.21% has gained 27% over the period.
Kohl’s stock has an average hold rating and average target price of $49.76, according to 19 analysts polled on FactSet.
JPMorgan is more upbeat though analysts also rate Kohl’s neutral. JPMorgan has a $46 price target on the retailer.
“We see Kohl’s $75,000-to-$80,000 household income core customer demographic and off-mall store fleet well positioned versus brick-and-mortar peers,” analysts said.
But there are still risks.
“Conversely, elevated competition requires sharper pricing/promotional activity to maintain market share, which we see as a potential offset to multi-year inventory management with 20-to-30 basis points of e-commerce pressure limiting gross margin and operating income flow through.”
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UBS analysts don’t think Kohl’s can avoid losing market share, writing in a December 2019 note that 17% has gone mostly to off-price retailers like TJX Cos. TJX, -0.41% , individual brands and its partner Amazon since 2011. However, UBS thinks the company can make up its losses from department stores, which have struggled.
Moreover, analysts are bullish about Kohl’s partnerships and initiatives, its loyalty program, which is getting a refresh, and improvements the retailer is making to its assortment.
“These initiatives mirror how consumer shopping preferences are evolving,” analysts said. “They could help Kohl’s actually take market share over the long term.”
UBS rates Kohl’s neutral with a $49 price target.
