After Kohl's (NYSE: KSS) reported its third-quarter results, its leadership team shared some important information with investors during the subsequent conference call.
Here are the highlights for shareholders.
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1. Key brands are performing well
As a clothing retailer, Kohl's is ultimately only as strong as the brands it offers in its stores. That's why it should come as great comfort to Kohl's investors that apparel from Nike (NYSE: NKE), Under Armour (NYSE: UA) (NYSE: UAA), and Adidas (NASDAQOTH: ADDYY) appears poised for a solid holiday shopping season.
It's been a brutal year for Under Armour. The once hard-charging sports apparel company's shares have been hammered as its growth has slowed in recent quarters. So Kohl's investors are likely breathing a sigh of relief that its partnership with Under Armour still appears to be off to a solid start. It's also reassuring that sales of Nike products have likewise been strong, especially with concerns growing that the sports apparel titan's recent deal to sell more of its goods on Amazon.com could dent sales of its products at traditional retail locations. Better still, Adidas adds another popular national brand and a third leg to Kohl's activewear business, which is further helping to drive sales in this key category.
2. Omnichannel initiatives are gaining steam
The retailers that win in this new era will be the ones that successfully integrate their online and in-store operations into a seamless omnichannel shopping experience. Kohl's is working to strengthen its pickup-in-store and ship-from-store abilities to 1. drive traffic to its stores, 2. add an additional layer of convenience for its customers, and 3. improve the efficiency of its shipping and fulfillment operations. Kohl's hopes these efforts will help to boost its in-store sales and increase the profitability of its e-commerce business.
3. Yet these investments are coming at a cost
Kohl's e-commerce investments are weighing on its profits, with shipping costs in particular taking a toll on its margins. This is a necessary evil, however, as Kohl's has little choice but to offer convenient, low-cost shipping options if it is to compete successfully in the current retail arena, in which more and more sales are migrating online.
4. Leaner inventories equal greater cash flow
The more efficient Kohl's becomes at managing the inventory levels at its stores, the more valuable its business will be. This is because intelligent and efficient management of working capital helps to free up cash that can be used to create value for shareholders in other ways.
5. Capital returns
Kohl's is using its bountiful free cash flow to gobble up its own stock. This serves to reduce the number of its outstanding shares, and therefore tends to support its stock's price by boosting earnings per share. In addition, Kohl's $0.55 quarterly dividend payout equates to a hearty 4.9% annual yield at today's $45 stock price. These capital returns will likely be a significant portion of Kohl's investors' total returns in the years ahead.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Joe Tenebruso has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends AMZN, Nike, Under Armour (A Shares), and Under Armour (C Shares). The Motley Fool has a disclosure policy.