Kohl's Growth Fueled by Sephora Partnership, Category Expansion

Kohl's Corporation KSS delivers growth through initiatives like enhancing customer experience, optimizing inventory and expanding its omnichannel presence. The company’s partnership with Sephora is working well, with an amazing experience for Sephora at Kohl's as a beauty destination. It is investing in white space categories, particularly its Impulse and Sephora businesses.

In the second quarter of fiscal 2025, the Sephora at Kohl's experience continued its strong performance, delivering another quarter of positive growth with a 3% increase in net sales and flat on a comparable-sales basis. KSS is on track to deliver the goal of accomplishing a $2-billion beauty business. Moving ahead, KSS is excited about the upcoming newness in Sephora, including brands like Kerastase hair, Rare Beauty fragrance, miu miu fragrance and Josie Maran Body, along with the expansions of successful brands, such as SummerFridays and LANEIGE.

Kohl's remains confident in the long-term potential of this strategic collaboration, which continues to enhance its position in the growing beauty market. We expect accessories (including Sephora) net sales growth of 5.4% year over year for the third quarter. Management is committed to implementing 613 additional Impulse queuing lines across the store fleet. In the second quarter, it implemented the Impulse queuing lines in more than 300 stores and is on track to complete the rollout by the end of the third quarter.

Kohl’s is strategically focused on delivering a more curated and balanced product assortment to better meet the evolving needs of its diverse customer base. The company is prioritizing product introductions to attract new shoppers and reemphasizing categories that resonate with its customers. The accessories category has exhibited positive comparable sales, excluding Sephora, since the transition. KSS’ juniors business has been gaining from its proximity to Sephora, with one of the top cross-shop categories. KSS is seeing encouraging growth in major proprietary brands like TekGear and FLX. Its home business exhibited strength in home decor and in the bedding and bath categories.

Kohl’s is enhancing its omnichannel platform by optimizing store layouts, improving product availability and creating a more seamless, inspiring shopping experience both in-store and online. Digital sales outperformed store sales on solid conversion rates. It is focused on optimizing its store layout and restoring trip assurance. Management remains focused on driving profitability while optimizing resources to better position the business for future success.

KSS’ Price Performance, Valuation and Estimates

Kohl's shares have gained 22.8% year to date compared with the industry’s 22.9% growth.

From a valuation standpoint, KSS trades at a forward price-to-earnings ratio of 32.2X compared with the industry’s average of 15.62X.

The Zacks Consensus Estimate for KSS’ fiscal 2025 and fiscal 2026 earnings per share (EPS) indicates a year-over-year decline of 66.7% and 13.4%, respectively. The company’s EPS estimate for fiscal 2025 and fiscal 2026 has moved north in the past 30 days.

Kohl's currently carries a Zacks Rank #3 (Hold).

Solid Picks in Retail

Genesco Inc. GCO operates as a retailer and wholesaler of footwear, apparel and accessories, sporting a Zacks Rank #1 (Strong Buy) at present. GCO delivered a trailing four-quarter earnings surprise of 28.1%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here. 

The Zacks Consensus Estimate for Genesco’s current fiscal-year EPS and sales indicates growth of 67% and 3%, respectively, from the year-ago period’s reported figures.

Levi Strauss & Co. LEVI, designer and marketer of jeans, casual wear and related accessories, currently carries a Zacks Rank #2 (Buy). 

The consensus estimate for Levi Strauss’ current financial-year EPS indicates growth of 4% from the year-ago figure. LEVI delivered an average earnings surprise of 25.9% in the trailing four quarters.

Tilly's, Inc. TLYS, a clothing, shoes and accessories retailer, currently has a Zacks Rank of 2. The company delivered a trailing four-quarter earnings surprise of 60.7%, on average.

The Zacks Consensus Estimate for TLYS’ current financial-year EPS indicates growth of 8.8% from the year-ago figure. 

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This article originally published on Zacks Investment Research (zacks.com).

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