What happened
In today's dumb stock move of the day, shares of Kohl's (KSS 2.83%) were moving higher, apparently gaining in the wake of a monster earnings report from Target (TGT -0.36%). It was the third big swing for Kohl's this week after the department store chain reported its own disappointing second-quarter results.
As of 11:42 a.m. EDT, Kohl's stock was up 4.3%. Target's, meanwhile, had gained 19.5% to hit an all-time high.
Image source: Kohl's.
So what
It's been a roller-coaster week for Kohl's. On Monday, shares of the mid-level department store chain rose 5.9%, seemingly in anticipation of its second-quarter earnings report due out the next morning. However, the stock gave up those gains and then some yesterday (falling 6.9%) after the company released underwhelming quarterly results that included a 2.9% slide in comparable sales.
Today's recovery was more puzzling. The gains could be in part because investors spotted an opportunity after yesterday's sell-off now that Kohl's offers a dividend yield of around 6% and is arguably a value play, but the more likely reason seems to be Target's surge.
The big-box chain posted a strong report across the board with comparable sales up 3.4% and adjusted earnings per share jumping 24%. It also raised its EPS guidance for the year.
Now what
Though Kohl's and Target are competitors as both cater to middle-class families and sell a wide range of products, Target is not a good analog for Kohl's these days as the two have very different strategies. Target has bet on its digital channel, investing in fast delivery following its acquisition of Shipt. It's also added a wide range of pickup options, and thereby taken the e-commerce fight directly to Amazon.com. It's also invested in store remodels and opening small-format locations in high-density urban neighborhoods, targeting an underserved consumer.
On the other hand, the key strategic initiative at Kohl's these days seems to be partnering with Amazon to accept customer returns for items purchased from the e-commerce giant. The terms of the deal, which expanded to all Kohl's stores in July, have not been disclosed, but the argument that the partnership will lead to increased foot traffic at Kohl's, and therefore sales, seems tenuous.
I'd be wary of the stock until its underlying performance improves.
