Kohl's (KSS 1.09%) stock surprised the naysayers with a 64% surge this year, but its five-year chart shows what more people would expect from a declining clothing retail stock. Its 42% drop during that time doesn't come close to the S&P 500's (^GSPC 1.10%) 83% gain over the same time frame, but the index is only up by 16% this year.
The company offers a 2.18% yield at current levels, but narrow profit margins limit future dividend growth. It's also not a good sign that Kohl's cut its dividend by 75% earlier this year.
The stock has shown signs of life this year, largely due to its status as a meme stock. It joins Krispy Kreme, Opendoor Technologies, and Rocket Companies as the DORK stocks, an acronym that refers to the four hottest meme stocks in 2025.
Is Kohl's nothing more than a meme play, or is there some value behind the name? Here's what investors should know.
It's hard to compete against the retail giants
Image source: Getty Images.
Walmart, Costco, and Target are the three retail giants, and the former two have been pulling away from the latter. This context is important for Kohl's stock, since those three retailers offer almost every possible item, including clothing. Why shop at Kohl's when you can buy affordable clothing and groceries at one of the retail giants?
These retail giants let you get everything done in one trip, and Kohl's doesn't give people that luxury. That may be part of the reason Kohl's had yet another quarter that featured year-over-year decreases in net sales and comparable sales. Fewer people are buying from Kohl's locations, and when they show up, they are spending less than they did one year ago. Walmart and Costco don't have that problem and continue to gain market share.
Not only is competition intense, but Kohl's also has low profit margins, which normally hover below 1%. That doesn't give Kohl's any leeway if costs go up or additional tariffs are enforced. It won't even get better for the rest of the year, with Kohl's anticipating net sales dropping by 3.5% to 4% for the full year. Analysts expect full-year comparable sales to drop by 2.5% to 3% year over year.
NYSE: KSS
Key Data Points
The balance sheet is a disaster
The balance sheet is a key culprit to Kohl's 42% decline over the past five years, and that drop includes the 2025 meme rally. Kohl's financial situation doesn't give the retailer much flexibility to invest in growth initiatives, and even making a profit is difficult.
Kohl's has $4.3 billion in current assets and $3.3 billion in current liabilities, which comes to a 1.30 current ratio, which sounds good. However, Kohl's has $3.9 billion in merchandise inventories that make up the $4.3 billion. Excluding its inventory, Kohl's only has $400 million in current assets and $3.3 billion in current liabilities, resulting in a 0.12 quick ratio. In short, this low quick ratio suggests minimal cash reserves and burdensome liabilities with upcoming due dates.
That means Kohl's doesn't have a good way to keep up with its financial obligations if inventory sales slow. It's not much of a problem if Kohl's manages to sell all of its inventory, but declining revenue and comparable sales make that scenario more difficult to achieve each year. Furthermore, Kohl's total assets dropped by 6% year over year.
Kohl's also gets its margins squeezed by interest, which won't go away anytime soon. The retailer had $73 million in Q3 operating income, but it spent $75 million on interest. Kohl's reported a positive net income only because of a one-time tax provision of $10 million. Kohl's ended up owing less in taxes than expected and could tap into some of its tax reserves as a result. It's not a winning formula for the long run.
Investors benefit from holding successful growth stocks long-term. However, the fundamentals make Kohl's stock look like a sinking ship struggling to stay afloat. Fundamentals matter more than stock price movements.
