Sold to you. Take badge 986. That's how I feel about Kohl's (KSS) this morning. Oh, I have long been a fan of the name. I have pounded the table, though not lately. Yes, I am still long some shares of this stock, though I long ago took some off. What have I liked about this firm? Besides an apparent cozy relationship with Amazon (AMZN) ? For one, I am the weirdo, who walks around and into the locations of retail operations near my locale. I do the crazy numbers nerds do. I count cars in the parking lots. I count people on line. I time those people to gauge consumer frustration. I watch to see if shoppers look at the price tag the second they engage with a piece of merchandise in order to measure price pressure at the point of sale. Lastly, I ask a salesperson a question about a product not in their department to see how they handle that.
Kohl's has always done a better job of passing my bazaar battery of exams than do many other retailers. I have long considered them well managed, with a decent handle on managing inventory as well. I have even tested their algorithms to see just how a consumer might maximize those 10%, 20% and 30% off coupons that the firm mails out. By the way, if you act on the 10's, you'll never see the 20's. Act on the 20's, and you'll never see the 30's. Always wait for the 30's, and that's what you'll see. So, they do the little things well, but are too straight forward in my opinion in their overt discounting.
Okay, the quarter was so-so. For the fourth quarter, the firm beat expectations for EPS and revenue. However that revenue came in at a year over year decline of -3.4%. You've seen the shares lose roughly 20% from where they had peaked. My guess is that this might have been a clue. Looking ahead toward the full year, management only sees same store sales as anywhere from flat to 2% growth from last year. For the quarter reported this morning, those same store sales rose by only 1%. By comparison, Target (TGT) also reporting this morning... boasted same store sales of 5.3%. One percent may have beaten expectations but is not going to cut it for me.
Of course, there can be a lot more to quarterly reporting than past and future performance. The firm came through big time here for shareholders. Kohl's announced that the firm will repurchase somewhere between $400 million and $500 million worth of stock in 2019. In addition, KSS increased the quarterly dividend to $0.67 per share, up six cents, or 9.8%. That is enticing. This next dividend will be payable on April 3rd to shareholders of record on March 20th.
Am I Going To Add?
Actually, quite the contrary. I have retail exposure elsewhere. I still do like the name, just not at this price. On top of pedestrian same store sales, I am troubled by the decrease in operating income, the flat gross margin rate, and the higher SG&A expense rate. I will be sacrificing the 4% dividend yield. I get that. Then again, I may be long these shares at slower net basis by then. I'll be using this strength to take a profit.
The Trade (if long.. in minimal lots)
- Sell 100 shares at or close to the last sale of $70... with an eye toward re-acquisition in the $64 neighborhood.
- Sell (write) one April 18th $65 put (Value: $1.43)
Note: The sale of the put expiring one month out will increase the proceeds derived from this trade by the premium, while exposing the trader to repurchase in a spot (net basis) already seen by that trader as attractive.