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Kohl's Stock Goes Up as Investors Cheer New Growth Initiatives

By Jon Quast – Oct 20, 2020 at 4:14PM

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The company will launch its own private label of athleisure products and expand its margin to get back to rewarding shareholders.

What happened

Shares of Kohl's (KSS 0.47%) gained on Tuesday after the company gave a presentation to investors. Outlined in the presentation were the company's growth initiatives, including delving into athleisure and beauty products. It was a breath of fresh air for shareholders still down 60% year to date. Kohl's stock finished the day 7% higher.

So what

Everyone's aware that 2020 has been a bad year for non-essential retail chains like Kohl's. But remember, Kohl's was struggling pre-COVID-19, with net sales falling 1.5% in 2019. The company needs something to drive revenue growth, and management believes it's found the answer. It will pursue active and athleisure apparel products and grow its beauty business.

A businessman draws an upward arrow over a stock chart displayed on a transparent touchscreen.

Image source: Getty Images.

Regarding athleisure, Kohl's is launching its own private brand called FLX. The space is presently dominated by lululemon athletica, but perhaps Kohl's can leverage its massive audience to steal market share. Considering the company has a whopping 30 million loyalty members, that's certainly something substantial to work with. Especially as many of its less fortunate competitors went out of business in 2020, or could go out of business in the near future.

Now what

For guidance, Kohl's management focused on getting its operating margin back up to 7% to 8%, up from 6.1% in 2019. That certainly seems attainable. And assuming sales stabilize, management would then like to return to buying back shares and issuing a dividend. 

Assuming Kohl's could simply get back to where it was last year, this could wind up being a high-yield dividend stock. The company was paying out $0.70 per share in a quarterly dividend before the coronavirus. That's over a 13% dividend yield from where the stock trades right now. Therefore, the company could be able to afford a juicy payout if it recaptures lost sales and expands operating margin.

However, that might be a premature take. First things first, Kohl's needs a successful launch of FLX in the spring. That's something to watch early next year.

Jon Quast has no position in any of the stocks mentioned. The Motley Fool recommends Lululemon Athletica. The Motley Fool has a disclosure policy.

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