3 Strong Strategic Retailers
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Many analysts are neutral on Kohl’s (NYSE: KSS). But a stock isn’t likely to remain in a tight trading range for any significant period of time. Therefore, Kohl's will either be a good or bad investment at today's price. Perhaps, TJX Companies (NYSE: TJX) or Target (NYSE: TGT) could present better long-term opportunities.
Kohl’s has improved on the top-line annually, and despite a slight earnings decline in 2012, it has consistently delivered big profits. This has allowed Kohl’s to return generous amounts of capital to shareholders.
Kohl’s has been buying back shares, which reduces share count and aids earnings. This, in turn, increases the likelihood of stock appreciation. Kohl’s also yields 2.70%. Kohl’s debt-to-equity ratio of 0.75 is slightly higher than the industry average of 0.6, but shouldn’t impact the company’s ability to return cash in the future.
Kohl’s has a strong reputation for customer service and easy returns. In fact, Market Force Information recently conducted a survey based on customer service, atmosphere, easy returns, and merchandise selection. Consumers rated the Top 5 retailers as such:
Apparently, Kohl’s takes customer service very seriously, as it’s aiming to improve even further by opening a customer service center in Dallas. The following is from a Kohl’s press release:
“Exceptional customer service has always been a top priority for Kohl’s,” said Kevin Mansell, Kohl’s chairman, president and CEO. “The addition of our new facility and associates will continue to ensure Kohl’s delivers a seamless, positive shopping experience for our customers. We are pleased to expand our presence in Texas and in the Dallas area, which offers a positive environment for business and a robust workforce.”
Many middle-income consumers also enjoy shopping at Kohl’s because of their sales. If you shop wisely and understand store trends, then you will rarely buy at full price. And you should be able to find what you want thanks to impressive brand diversification.
Yet another positive is convenience. By offering off-mall locations, Kohl’s is more easily accessible than traditional mall-based stores. The presence of Kohl’s in off-mall locations has also led to the closings of regional competition. Many of those shoppers now frequent Kohl’s.
Kohl’s might have beat earnings expectations in the first quarter, but revenue declined 1%, and same-store-sales dropped 1.9%. This was largely due to poor marketing, inclement weather, and inaccurate pricing. The good news is that Kohl’s expects sales to jump 1.3% and comps to increase 0.2% in the second quarter.
TJX has seen steady revenue and earnings improvements through the years. Its brands include T.J. Maxx, Marshalls, HomeGoods, Winners, HomeSense, and Sierra Trading Post.
TJX customers have an opportunity to buy quality brands at discounted prices, which is a result of the company’s strategic relationships with brand manufactures. Simply put, TJX benefits from brand manufacturers’ excess inventories.
TJX sports a profit margin of 7.39% (high for the industry), and its debt-to-equity of 0.34 is below the industry average. The latter is a big positive, as it will allow the company to weather any economic storms and increases the odds of increased capital payouts. Currently, TJX Companies yields 1.10%.
Like the two companies mentioned above, Target also markets to the middle-income consumer. Target has shown recent revenue and earnings improvements, and top-line growth expanded in 2012, which isn’t often seen in today’s economic environment.
Target is highly strategic and the moves the company is making now should pay off down the road. Target is opening CityTarget stores, which are smaller, multilevel stores, located in urban areas. The idea is to capture the constant foot traffic found in heavily populated areas. Target also plans on opening 100 to 150 stores in Canada. This seems to be a wise move considering Canada’s strong economy, which has much less downside risk than the United States.
Kohl's customer service is top notch and should help it win share. TJX doesn't carry much debt and is able to earn high margins on excess inventory. Target is testing new initiatives that should serve it well in the future. As long as the stock and real estate markets remain afloat, all three aforementioned companies are well-positioned for growth.
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