How Do They Make Money?

Kohl's has been consistently sliding recently, reaching a price point not seen since the peak of early-mid 2020's Covid fear. The stock price has been sliding because its revenues are consistently decreasing, even compared to other retail competitors such as Macy's.

The stock price recently tanked 20% on news of another earnings miss, and the CEO took full responsibility and is set to be replaced in Mid-January. I believe this stock price tank was a kneejerk reaction to relatively unsurprising, and after some brief research on the incoming CEO, current Michael's - Ashley Buchanan - what appears to be overall good news.

Kohl's has a strong partnership with LVMH's Sephora brand, they are also shoring up their reduction in their core market share through an increasing partnership with Babies R Us. It is not enough to turn the direction of the tide, but these relatively successful partnerships are at least preventing some of the hemorrhaging.

Amazon - they are now offering the capability to do Amazon returns in-store, which is giving customers another reason to make a trip to Kohl's. They also bait them with $5 of Kohl's cash to get them to shop around while there.

White Girl Indicator - My fiancé went Christmas shopping at Kohls recently and said it was still fairly busy, with mostly lower-middle class income shoppers. She also maintains a favorable opinion of Kohls merchandising and the trinkets/other selections they offer. She was happy to learn about the Amazon return offerings, she was generally unimpressed with the Sephora selection being offered but appreciated it being available.

Franchise Group - tried to buy KSS at $69 per share in April 2022 The deal was rejected but it gives us a benchmark for what the market thought KSS was worth.

Oak Street Real Estate Deal – A $2B Real Estate Portfolio.
After that rejection, Oak Street stepped in and made an offer to buy a portion of Kohl's real estate for $2B. $2 billion for a portion of the real estate? At the current market cap of $1.65 billion, that tells you one thing: Kohl's real estate alone is worth more than the ENTIRE company. If we’re being conservative, the real estate portfolio could easily be worth $4-5 billion, which is well above where the stock is trading right now.

As a pure cash machine, Kohl's is actually still decently profitable, its just dying instead of growing. The value of their real estate holdings and assets to liabilities versus their market cap hedges the bet that even though it bouncing back is not a sure thing, it is enough to significantly reduce the downside risk of a complete collapse. In the worst case at low enough valuations we may see offers from REITs or private equity to buy out the company purely for the real estate.

Kohls is also currently offering an insane dividend (13%+!) because it has not adjusted its dividend payout since it was $60 a share. It still pays 50c a share on quarterly dividend distributions despite the much lower share price.

If the incoming CEO is successful in turning the company around, even somewhat, it may spike back to its fairer and historical average valuation of $30-40/share.

Bearish: Kohl's and brick and mortar retail is surely dying. The quality of Kohl's goods relative to its pricing has decreased in the net since their glory days. With inflationary pressure consumers are more discerning, and unlike Walmart - Kohl's goods would not typically qualify as "essentials".

I don't think this is a great company at a fair price, I think this is a Cigar Butt company which is unjustly undervalued by investor fear and macro headwinds. I think this is a formerly strong company which is now merely weak-fair company at a irresponsibly low valuation, with some genuine potential to turn things around with a restructuring of leadership. To me its an easy short term buy and hold for a quick swing trade, but I wouldn't bet on the company in the much longer term.