The resurgence of COVID-19 cases due to the rapid spread of the highly contagious Delta variant continues to worry investors. In addition, according to Trading Economics data, U.S. retail sales in July…
declined 1.1% from the prior month.
However, the department store industry is expected to continue gaining in the coming quarters on the back of increasing demand for consumer goods and strengthening online platforms and delivery systems. According to Statista, department stores and other general merchandise stores are expected to generate $2.18 trillion by 2025. Furthermore, with rapid vaccinations across several parts of the world, department stores could witness rising foot traffic.
So, we think it could be wise to bet now on fundamentally strong department store stocks Kohl’s Corporation (KSS), Macy’s, Inc. (M), and Dillard’s, Inc. (DDS). However, with increasing competition in the department store industry, we think it’s advisable to avoid Nordstrom, Inc. (JWN) now because of its relatively weak financials.
Kohl’s Corporation (KSS)
KSS in Menomonee Falls, Wis., is one of the leading omnichannel retailers. It has come a long way from opening its first department store in Brookfield, Wisconsin in 1962, to now operating more than 1,100 stores across 49 states. It provides various products, including branded apparel, footwear, and accessories, through its stores and website.
Sephora announced in April 2021 that more than 125 prestige beauty brands would be coming to Sephora at Kohl’s this year in partnership with KSS. This partnership is expected to help expand the company’s reach and the accessibility of prestige beauty brands through a unique, immersive beauty experience.
KSS’ revenue increased 30.5% year-over-year to $4.45 billion in the second quarter, ended July 31, 2021. Its operating income came in at $570 million, up 383.1% year-over-year. Its non-GAAP net income for the quarter was $382 million, versus a $39 million loss in the year-ago period. Also, its non-GAAP EPS came in at $2.48 compared to a $0.25 loss in the prior year period.
Analysts expect KSS’ revenue and EPS to increase 23.6% and 358.5%, respectively, year-over-year to $18.58 billion and $6.1 in the current year. In addition, it has surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past nine months, the stock has gained 75.2% in price to close Friday’s trading session at $58.69.
KSS’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which indicates a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
KSS has an A grade for Growth, Value, and Quality. Within the A-rated Fashion & Luxury industry, it is ranked #12 of 64 stocks. Click here to see the additional POWR Ratings for Momentum, Sentiment, and Stability for KSS.
Macy’s, Inc. (M)
One of the nation’s premier omnichannel fashion retailers, M’s portfolio of brands includes Macy’s, Bloomingdale’s, and Bluemercury. The company has roughly 726 retail stores and operates through its websites and mobile applications. M is headquartered in Cincinnati, Ohio.
On August 26, 2021, Bloomingdale’s launched its first “Bloomie’s” store in Fairfax, Virginia. Also, on August 19, 2021, M announced a partnership with WHP Global to bring together Macy’s and Toys”R”Us. These strategic moves are expected to help M expand in the retail space.
For its fiscal second quarter…
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