Kohl's is 'another show-me story': analyst

·Anchor, Editor-at-Large
·2 min read

Another tough week for the Kohl's (KSS) bulls as Wall Street begins to take a more cautious stance on the stock post-holiday season. 

"I think Kohl's in the department store land is another show-me story," top ranked JPMorgan retail analyst Matt Boss said on Yahoo Finance Live. Boss pointed to supply chain challenges brought on by the pandemic as one key issue that will hamper Kohl's for the front part of the year.

Boss rates Kohl's shares at a Neutral. 

The analyst added Kohl's continues to have problems gaining market share in the competitive women's apparel space. In order for the stock to get working higher, Boss believes Kohl's must start driving better store traffic to its new Sephora cosmetics shops and expanded active apparel departments.

"It will be an uphill battle," acknowledges Boss. 

Boss isn't alone in thinking Kohl's may have a tough year. 

UBS analyst Jay Sole slashed his rating on Kohl's to Sell this week. 

Besides trying to show Wall Street it could deliver, Kohl's execs have other problems on their hands as well.

Engine Capital — a new activist investor in Kohl's — dropped a scathing new letter several weeks ago to the Kohl's board of directors. In the letter, Engine Capital demands Kohl's considers a sale in its entirety or splits off its online business (similar to what activist investor Jana is begging Macy's to do).

The Engine Capital campaign marks the second time Kohl's CEO Michelle Gass and Kohl's have been targeted for the underperformance of the stock and business in 2021. Back in April 2021, Kohl's settled with the activist group led by Macellum Advisors. The settlement involved a board shakeup and the approval of a new $2 billion stock buyback plan.

MIRAMAR, FLORIDA - JULY 16: A view outside a Kohl's store on July 16, 2020 in Miramar, Florida. Some major U.S. corporations are requiring masks to be worn in their stores upon entering to control the spread of COVID-19. (Photo by Johnny Louis/Getty Images
Kohl's store in Miramar, Florida. (Photo by Johnny Louis/Getty Images

To be sure, the activists have a strong case on Kohl's.

While Kohl's has garnered favorable headlines for its partnerships with Amazon (for store returns) and more recently cosmetics giant Sephora, the company simply has not delivered on several fronts. Operating margins and sales growth have lagged many rivals since Gass took over at CEO in May 2018. 

Kohl's shares are up 7% the past two years, underperforming the S&P 500's 44% gain. Target's stock is up 81%, while Macy's has notched a 55% improvement. 

Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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