Although Kohl's (NYSE:KSS) was never as financially troubled as J.C. Penney that the coronavirus pandemic would threaten to send it into bankruptcy, a second wave of COVID-19 outbreaks that causes states to lock down again should force investors to think about whether it could withstand the shock.

Subverting expectations

Kohl's first quarter earnings report was predictably bad due to closing down all of its stores, but its rebound since reopening them in May is more likely the result of the pent up consumer demand being unleashed.

Kohl's contactless pickup sign

Image source: Kohl's.

The Census Bureau says retail sales rose 1.2% month-to-month in July following June's 8.4% gains, but they remain sharply below year-ago figures, particularly in areas critical to Kohl's success.  The National Retail Federation says while clothing and clothing accessories stores saw sales jump 5.7% in July, they were almost 20% below last year's level.

E-commerce is also expected to account for over 15% of all retail sales this year even as total sales drop 10% from last year.

The stock is down 54% year to date as a result, much worse than the S&P 500's 4.4% gain, though down just 18% since a pandemic was declared.

KSS Chart

KSS data by YCharts

One benefit Kohl's possesses is most of its retail stores are not located in shopping malls, but rather in off-mall venues such as strip malls or as stand-alone buildings. With the shopping mall dying, a partial cause of J.C. Penney's troubles, Kohl's still has the ability to attract consumer dollars.

The department store chain also shored up its liquidity during the pandemic, issuing $600 million of unsecured debt, refinancing an existing $1 billion unsecured credit facility with a new $1.5 billion secured credit facility on which it has drawn $1 billion, and ending the quarter with over $1 billion in liquidity.

That suggests Kohl's could withstand the ravages another forced closure would bring, but it would end up a dangerously fragile business with few financial levers left to pull.

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.