KSS Stock: 16.9%-Yielding Retailer Has Massive Upside Potential
February 24, 2025
Out of Favor Now, But KSS Stock Could Provide Big Windfall
Everyone loves to say retail is dead and e-commerce is taking over. But here’s the thing: e-commerce makes up less than one fifth of all retail sales. This means that over 80% of shopping still happens in physical stores.
The fact is retail isn’t dying; it’s evolving. And some companies are figuring out how to do this successfully.
Not all retail will be equal, and some businesses could face dire consequences if they don’t evolve.
However, investors should pay attention to Kohls Corp (NYSE:KSS, $11.85) in the midst of all this.
Right now, investors hate KSS stock. They’re pricing it like we’re back in 2020, as if Kohls is on the verge of collapse.
Take a look at the chart to get some perspective.
Chart Courtesy of StockCharts.com
KSS stock has dropped more than 73% over the last three years.
Look at the stock’s 50-week and 200-week moving averages; they are well above the stock price. This suggests that intermediate-term and long-term trends are pointing downward, and investor sentiment is extremely bearish.
To add salt to the wound, investors are betting against KSS stock. As per the most recent data, 54.34% of the entire float (shares available for trading) is short. (Source: “Key Statistics,” Yahoo! Finance, last accessed February 20, 2025.)
Is KSS Stock a Contrarian Opportunity?
But, if you dig deeper, you’ll see that the reality is very different.
When expectations are this low, even small improvements can move a stock higher.
So, is Kohls a retail dinosaur, or is it a “fallen angel” opportunity in disguise?
Now a little about the company…
Headquartered in Menomonee Falls, Wisconsin, Kohls Corp operates as an omnichannel retailer in the U.S. Via its website, mobile application, and more than 1,100 stores in 49 states, Kohl’s offers branded apparel, footwear, accessories, and beauty and home products.
The company offers a mix of private and exclusive brands, including “Croft & Barrow,” “Jumping Beans,” “SO,” “Sonoma Goods for Life,” and “Tek Gear.” (Source: “Profile,” Yahoo! Finance, last accessed February 20, 2025.)
Kohl’s management realizes that there are problems and is trying to tackle them.
With the release of the third-quarter 2024 financial results, Tom Kingsbury, the outgoing chief executive officer (CEO) of Kohl’s, had this to say: “We are not satisfied with our performance in 2024 and are taking aggressive action to reverse the sales declines…” (Source: “Kohl’s Reports Third Quarter Fiscal 2024 Financial Results,” Kohls Corp, November 26, 2024.)
The key phrase to focus on here is “aggressive action to reverse the sales declines.”
Looking at the company’s financials, you can see that management is working very hard to steer the company in the right direction.
Selling, general, and administrative expenses for the first three quarters of 2024 amounted to $3.8 billion, declining 3.4% year over year.
If revenue slows down, expenses must be controlled very carefully. And Kohls is doing just that.
Beyond this, Kohls generated $52.0 million from operations in the first three quarters of 2024. This is lower than the same period last year, but positive cash flow is a good sign. It tells us that business is bringing in enough money to pay for the company’s day-to-day expenses.
Kohls Doing All the Right Things
Furthermore, Kohls is reducing its long-term debt. In the first three quarters of 2024, the company lowered its long-term debt by $113.0 million. At the end of the quarter, long-term debt stood at $1.17 billion.
Why does reducing debt matter?
Well, if interest rates remain high for a longer period, higher debt can eat into profits.
In addition to all this, there’s a new CEO at Kohls, as of January 15: Ashley Buchanan.
Buchanan previously served as CEO of The Michaels Companies and chief merchandizing and then chief operating officer of Walmart Inc’s e-commerce business. This new appointment could be a game-changer for Kohls.
Recently, the company also announced that it will be closing 27 of its non-performing stores by April and its e-commerce distribution center in San Bernardino by May 2025. (Source: “Kohl’s Announces Select Real Estate Changes,” Kohls Corp, January 9, 2025.)
Sometimes, getting leaner is the best way to go. Non-performing stores and distribution centers tend to be expensive to carry and act as a drain on cash flow.
KSS Stock: Amazing Opportunity for Income Investors?
The good news doesn’t end there…
While shareholders wait for a turnaround at Kohls, they could generate decent income holding KSS stock. At the current price, KSS stock has a dividend yield of 16.93%, paying $0.50 per share each quarter or $2.00 per share for the year.
Currently, KSS stock trades at around $11.80 per share, so a mere investment of $1,180 (100 shares), could generate income of $200.00.
Now, it’s important to note that Kohls is in a turnaround situation. This means that its financials could get better, which could ultimately be good for dividends. Prior to the company hitting some hurdles, Kohls used to pay a quarterly dividend of $0.70 per share. If a similar dividend is reinstated, a shareholder could see a massive increase in income.
The Lowdown on KSS Stock
Sure, KSS stock has seen massive downside, but this retailer is trying its best to turn around. In the meantime, those who own the stock could generate decent income. And, if Kohls’ turnaround is successful, the capital appreciation could be immense as well.
Something else worth noting: since a massive amount of KSS stock float is shorted, this makes it a great contender for a short squeeze. If Khols continues to improve its profitability and the news flow is positive in the coming quarters, it might be enough reason for bearish investors to ditch their positions.
Remember: the only way bearish investors can exit their positions is by buying back the stock. This frenzy of buying could cause a big spike in KSS stock.
