Shakespeare once implored us to “be not afraid of greatness.”
And while I’m sure every CEO in the world agrees in theory, not all of them follow through.
That’s what makes Kevin Mansell so interesting.
He’s the CEO of America’s largest department store chain – and his “Greatness Agenda” has positioned the company and its 1,100-plus stores for long-term success.
Yet the company’s stock remains surprisingly cheap, in large part because of a “disappointing” first quarter.
Fickle investors have given us a real opportunity here. This low price isn’t going to last, so don’t wait too long to do some bargain shopping.
Indeed, investors may be down on Kohl’s (KSS) right now. But the underlying business looks strong.
About a year ago, Kohl’s unveiled its customer-centric Greatness Agenda. According to CEO Kevin Mansell, “The Greatness Agenda was built on five pillars: amazing product, incredible savings, easy experience, personalized connections, and winning teams.”
The first Greatness Agenda initiatives included new beauty shops in stores – as well as a new loyalty program that benefited all customers (not just Kohl’s cardholders).
More recently, Kohl’s implemented a buy-online/pick-up-in-store program that was long overdue.
Additionally, it announced a plan to sell returned merchandise at brand-new off-price stores. This initiative alone could launch Kohl’s cost savings into the billions. Returned items are a huge drain on most clothing retailers. Some – like Victoria’s Secret – shred every item that’s returned to them! If the idea takes off, Kohl’s should reap huge benefits.
Considering the stock’s recent trajectory, though, it appears that investors aren’t seeing the light just yet…
Finding Value in the Bargain Bin
Kohl’s stock took a massive 13% hit after its first-quarter earnings report. For perspective, that’s the largest single-day drop in the stock’s entire trading history, according to MarketWatch.
Yet the news wasn’t as bad as a drop of that magnitude would imply.
The company reported same-store sales growth of 1.4%. That’s good compared to the same period last year, which saw a decline of 3.4%. Still, it was well below the market’s expectation of 2.6% growth.
On top of that, Kohl’s reported revenue of $4.12 billion. It represents a 1.3% increase from the same period last year. But it’s a bit below the $4.19-billion figure analysts had predicted.
Either way, investors fled the scene immediately, which is good news for us. The current price looks like a decent entry point into KSS.
Just to make sure, though, let’s take a look at Kohl’s current valuation. As you’ll see, it’s quite appealing compared to both its competitors and the market as a whole.
Furthermore, Kohl’s is trading at a significant discount to several of its own 10-year averages
Of course, we don’t just want cheap stocks. We want decent yield and solid dividend growth, too!
Kohl’s pays a quarterly dividend of $0.45, good for a respectable indicated yield of 2.74%. And because of an extensive share buyback program, the stock has a nice total yield of 7.47%.
Most recently, the company boosted the payout by more than 15%, and it’s grown the dividend 80% since 2011.
Finally, because of its niche, Kohl’s should be able to weather any potential economic downturn better than many of its competitors. The company sells affordable clothing to middle-class families, making it less prone to economic uncertainty than high-end retailers like Tiffany (TIF) or Coach (COH).
Bottom line: It’s tough to find decent businesses trading at a discount these days. Thus, while Kohl’s may be reeling from its poor earnings report, its current level could be an attractive entry point into a solid business.