Kohl’s: Port in the Storm?

It’s getting harder by the day to tell you about stocks that are holding up while the market bleeds. One is Kohl’s (symbol KSS), which sells standard-issue clothing and basic stuff for the house at reasonable prices.

Kohl’s builds box stores that are similar to Target and Wal-Mart units but styles them inside to resemble mall department stores. Bucking the tide of another dreary day in the market, shares of Kohl’s on Tuesday climbed 0.5%, to $55. The stock may have benefited from a rating upgrade by Matrix Research, as well as some carryover from decent sales figures Kohl’s reported last week. Kohl’s shares are only a couple of bucks below their 52-week high. More telling, the stock is up 14% in 2006, while Target is down 12% and Wal-Mart is flat. In fact, few retail stocks of any kind are now ahead of Kohl’s for the year to date.

Kohl’s resilience in 2006 is surprising given the lack of interest in the stock the past few years. It has performed dismally since 2001 despite continued growth in sales and earnings. Investors may have been looking for more exciting opportunities during a period that was mostly marked by rising share prices. Or they may have concluded Kohl’s wasn’t attractive because department stores have been losing business to other retail formats. It’s hard to tell.

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But now the stock market is in heavy seas, so is Kohl’s a port in the storm? It looks that way. Kohl’s got a boost this past winter when it sold its credit card receivables for $1.6 billion in cash (to put that sum in perspective, it is one-tenth of Kohl’s annual merchandise sales) and announced plans to buy up to $2 billion of its own stock in the next two to three years. Lehman Brothers says that if Kohl’s proceeds with the entire buyback, it will add 26 cents a share, or 9%, to Kohl’s annual earnings. The stock’s price-earnings ratio is normally in the low 20s, so the full repurchase would be worth around $5 a share.

Then there’s the business itself. Kohl’s is financially strong. Its stores are efficient and its newer ones are quite spiffy. And the chain still has growth possibilities, with the Pacific Northwest and most of Florida to fill. Matrix Research, which uses quantitative factors to evaluate stocks, ranked Kohl’s and its shares highly on such readings as sales growth, profit margin, earnings momentum, and more. Matrix works the word “superstar” into its forest of numbers. On a day when expectations seem to be at a low point, it’s nice to read something positive about a well-known company.

--Jeffrey R. Kosnett