(6 January 2017)
KSS Business Summary
This company operates more than 1,000 specialty department stores in 49 states, featuring moderately-priced apparel, shoes, accessories, and products for the home.
- Price to Earnings: 12.85
- Earnings Per Share: $3.99
- Market Cap: 8.70B
- Current Ratio: 1.60
- Return on Equity: 11.35%
- Return on Assets: 4.41%
- Dividend Yield: 3.62%
Balance Sheet ($ in Millions)
- Total Assets increased $470.
- Total Current Liabilities increased $812.
- Total Stockholder Equity decreased $384.
Income Statement ($ in Millions)
- Net Sales decreased $336.
- Gross Profit decreased $158.
- Income from Operations decreased $303.
- Net Income decreased $74.
Cash Flow Statement ($ in Millions)
- Net Cash provided by operating activities increased $873.
- Net Cash used in investing activities increased $36.
- Net Cash used in financing activities increased $41.
Highlights from 10-Q
“Sales were $4.3 billion for the quarter, 2.3% lower than the third quarter of last year. On a comparable store basis, sales were 1.7% lower. The decreases were primarily driven by fewer transactions in our stores partially offset by higher average transaction value.
Inventory, gross margin and expenses were well-managed in a challenging sales environment.
|•||Inventory per store decreased 9%.|
|•||Gross margin as a percentage of sales increased 2 basis points to 37.1% driven by fewer promotional markdowns which were offset by higher shipping costs|
|•||Selling, general and administrative expenses (“SG&A”) decreased $19 million, or 2%, on strong expense management against the lower sales volume; however, we still experienced expense deleveraging.|
During the quarter, we reversed $6 million of previously recorded expenses associated with store closing and restructuring costs. The reversal includes severance for corporate associates that have found re-employment elsewhere and lease liabilities for a store that will be used for corporate purposes.
Net income for the quarter was $146 million, or $0.83 per diluted share. Excluding the store closure and restructuring items in 2016 and loss on extinguishment of debt in 2015, net income was $142 million, or $0.80 per diluted share, 7% higher than the third quarter of last year.”
- Net sales decreased $100 million, or 2.3%, to $4.3 billion for the third quarter of 2016. Year to date, net sales decreased $336 million, or 2.6%, to $12.5 billion. Comparable sales decreased 1.7% for the third quarter and 2.4%
Entry Level: Anything below $35.
Exit Level: Anything above $55*(if I feel it’s overvalued)
- KSS balance sheets were solid, it was it’s income statements and cash flow statements that have caused the drop in share price.
- Sales and income were down 9 months ended.
- However, cash flow from operating activities increased almost $400 million.
- I think this is a case of a stock being oversold on bad news.
- I would love this company at anything below $35, for two reasons:
- It gives us a much better margin of safety because I still feel at this price it is still overvalued given it’s financials.
- It would offer us a chance to hedge our downside, while providing us a nice 3% dividend to boot.
- Overall, I would be bullish if it goes below $35 or hits $35. In this scenario, this bad news might be enough of a headwind to push it to that level. But I would be hesitant to buy right now, unless the plan is to dollar cost average down into $35.