What happened

Shares of Kohl's Corporation (NYSE:KSS) were flying higher last month after the department store chain delivered a surprisingly strong holiday sales report and rode a broader wave pushing up retail stocks. According to data from S&P Global Market Intelligence, the stock finished January up 19.4%. As the chart below shows, much of the gains came in the second week of the year after the report was released.

KSS Chart

KSS data by YCharts.

So what

Confirming third-party reports that retailers had a robust holiday season, Kohl's said comparable sales surged over the holidays, jumping 6.9% during November and December, which was better than any of its department store competitors. The stock climbed 5% the day that report came out as management said that digital demand significantly accelerated in the period, and the company saw both positive store-based sales and positive traffic. 

Due to the strong results, management also lifted its full-year adjusted earnings-per-share guidance from $3.72-$3.92 to $4.10-$4.20. 

The front of a Kohl's department store.

Image source: Kohl's.

Now what

Kohl's stock is up nearly 50% over the last three months as the company seems to be benefiting from several advantages it has over its department store rivals. Its stores generally occupy stand-alone locations, not the malls where Macy's and J.C. Penney are often found, and the company has resisted store closures because of that. The advantage of those locations may have helped drive the increase in traffic over the holidays and to attract partnerships with brands like Amazon, which began a pilot program to accept returns at Kohl's stores and to sell its own electronics. 

Looking ahead, Kohl's should benefit further from the new tax law, which will significant slash rates for retailers.  Even after the recent gains, the stock trades at a reasonable price-to-earnings ratio of 15 based on last year's expected EPS. If the company continues to deliver comparable sales growth, shares should move higher. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.