Which department store stock is a better buy?
Kohl Company (KSS) and Nordstrom, Inc. (JWN) are two major players in the department store industry. KSS offers private and national brand clothing, footwear, accessories, beauty and home products through its stores and website. As of January 30, 2021, it operated 1,162 physical stores, a website and 12 FILA outlets. In comparison, JWN offers clothing, footwear, beauty products, accessories, and home goods. It offers a range of branded and private label products through multiple retail channels, discount stores, boutiques, catalogs and the Internet. As of March 2, 2021, it operated 358 physical stores.
In 2021, solid progress on the vaccination front has led to an increase in foot traffic in department stores, helping them generate substantial income. Additionally, department stores have seen an increase in sales on their e-commerce platforms. Despite the recent resurgence of COVID-19 cases, supply chain constraints and strong inflationary pressures, increased consumer spending this holiday season has allowed retail sales to rise. 8.5% compared to the period of the previous year in November 2021, the highest in 17 years. Global department store sales are expected to grow 4% CAGR and reach over $ 12 billion by 2030. So KSS and JWN stand to benefit.
While JWN has lost 27.5% in the past year, KSS has jumped 21.4%. But which of these titles is the best choice now? Let us know.
On April 27, 2021, Sephora, a French multinational retailer of personal care and beauty products, partnered with KSS to bring more than 125 premium beauty brands to KSS stores in August as part of their new Omni partnership. . This strategic partnership extends the reach and accessibility of prestigious beauty brands through a unique and immersive beauty experience. KSS expects high sales to come.
On November 18, 2021, JWN and Fanatics, a leading provider of licensed sporting goods and global digital sports platform, announced a new long-term partnership through which JWN customers can purchase high-quality products. and licensed for sports fans available in the Fanatics industry. leading assortment. JWN will power the digital front-end customer experience, while orders will be fulfilled and shipped by Fanatics. JWN looks forward to benefiting from this innovative partnership model and new product category.
Recent financial results
KSS’s total revenue for its fiscal third quarter, ended October 30, 2021, increased 15.6% year-on-year to $ 4.60 billion. The company’s operating profit was $ 387 million, indicating an increase of 1,659.1% over the prior year period. KSS’s adjusted net profit was $ 243 million, up 12,050% from the previous year. Its adjusted EPS rose 16,400% year-on-year to $ 1.65. The company had $ 1.87 billion in cash and cash equivalents as of October 30, 2021.
For its fiscal third quarter, ended October 30, 2021, JWN’s total revenue increased 17.7% year-on-year to $ 3.64 billion. The company’s pre-tax profit was $ 91 million, an increase of 56.9% from the previous year. JWN’s net income was $ 64 million for the quarter, an increase of 20.8% from the prior year period. Its EPS stood at $ 0.39, up 14.7% from the previous year. The company had $ 267 million in cash and cash equivalents as of October 30, 2021.
Past and expected financial performance
KSS’s EBIT and EPS have grown at CAGRs of 7.3% and 2.2%, respectively, over the past three years. The company’s leveraged free cash flow has grown at a CAGR of 5.1% over the past three years.
Analysts expect KSS’s EPS to rise 409.3% year-on-year in the current fiscal year, but decline 7.9% next year. Its revenue is expected to grow 25.4% year-over-year in the current fiscal year and 2.1% next year.
In comparison, JWN’s EBIT and EPS have fallen at CAGRs of 27% and 71.7%, respectively, over the past three years. The company’s leveraged free cash flow has fallen to 24.5% CAGR over the past three years.
JWN’s EPS is expected to grow 128.2% year-over-year in the current fiscal year and 66.1% next year. The company’s revenue is expected to grow 36.7% year-over-year in the current fiscal year and 3.7% next year.
In terms of non-GAAP futures P / E, JWN is currently trading at 17.31x, which is 156.1% higher than 6.76x of KSS. And in terms of non-GAAP PEG forward, KSS’s 1.00x compares to JWN’s 2.89x.
KSS’s turnover in the last 12 months is almost 1.4 times that of JWN. However, KSS is more profitable, with a 41.8% Gross margin against 35.4% for JWN.
In addition, KSS’s ROE, ROA and ROTC of 8.7%, 20.1% and 7.4% compare favorably to JWN’s 2.2%, 3.6% and 2.3%, respectively.
While KSS has an overall rating of B which translates to Buying into our property POWR odds system, JWN has an overall rating of C, equivalent to Neutral. POWR scores are calculated by considering 118 distinct factors, each weighted to an optimal degree.
Both KSS and JWN have a C rating for Momentum, which matches their mixed price performance over the past year.
KSS has an A rating for value, which is in line with its lower valuation ratios than the industry. It has a forward EV / EBITDA of 4.6, which is 56.5% below the industry average of 10.58x. JWN’s B rating for value reflects its relatively lower valuation ratios. JWN’s forward EV / EBITDA of 7.45x is 29.6% lower than the industry average of 10.58x.
Out of 63 shares rated A Fashion & Luxury Industry, JWN is ranked No. 51, while KSS is ranked No. 24.
Beyond what we have stated above, our POWR rating system also rated KSS and JWN for growth, quality, stability and sentiment. Get all KSS ratings here. As well, Click here to see additional POWR odds for JWN.
Rising consumer spending this holiday season should allow department stores to generate solid returns and weather rising input costs. Both KSS and JWN are expected to benefit from in-store and online sales. However, we believe that a higher profit margin and relatively lower valuation makes KSS a better buy here.
Our research shows that the odds of success increase when betting on stocks with an overall buy or strong buy POWR rating. Click here to access the top rated stocks in the fashion and luxury industry.
Shares of KSS were trading at $ 50.28 a share on Monday afternoon, up $ 0.89 (+ 1.8%). Year-to-date, KSS has gained 25.81%, compared to a 28.89% increase in the benchmark S&P 500 over the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a particular interest in researching market inefficiencies. She is passionate about educating investors so that they can be successful on the stock market. Following…