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Kohl’s vs Burlington Stores: Which Retailer Is Poised To Rebound Post-Covid?
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Kohl’s vs Burlington Stores: Which Retailer Is Poised To Rebound Post-Covid?

Pre-COVID, retailers were already struggling to thrive as online players, mainly Amazon, were stealing their market share. The pandemic added to retail woes as stores were temporarily shut due to lockdowns. Meanwhile consumer spending shifted to essentials from discretionary items like apparel and accessories. 

We will discuss how Kohl’s and Burlington Stores have performed amid this crisis and using the TipRanks’ Stock Comparison tool, we will see which stock offers a more compelling investment opportunity.

Kohl’s (KSS)

Mid-tier department store chain Kohl’s (KSS) delivered better-than-expected results in the fiscal second quarter (ended August 1). But investors were still not pleased as the company disclosed that sales trends decelerated in July after the recovery in June due to fears associated with rising COVID-19 cases. Moreover, management indicated a lackluster back-to-school season as parents are not sure about when their children will return to schools.

At the same time, Kohl’s second-quarter sales declined 22.9% Y/Y to $3.21 billion as most of the stores were still closed in May. Also, reopened stores operated for limited hours. Digital sales growth of 58% helped in offsetting weakness in the top-line to some extent. Digital sales accounted for 41% of overall sales compared to 20% in fiscal 2019’s second quarter.

Home, active and children merchandise categories were in demand in the quarter, while apparel sales were weak. Overall, the company reported an adjusted loss per share of $0.25 compared to an adjusted EPS of $1.55 in fiscal 2019’s second quarter due to weak sales and margin pressure.

Looking ahead, Kohl’s continues to enhance its omnichannel capabilities as the pandemic is impacting customer shopping habits. The company’s stores are increasingly supporting the surge in its digital business by serving as a fulfillment hub for ship-from-store and customer pickup options. Kohl’s is optimistic about gaining additional traffic from its Amazon Returns program.   

Plus, the company is reducing its inventory to ensure lower markdowns and has also been cutting down its expenses and capital expenditures. (See KSS stock analysis on TipRanks)

On August 19, Deutsche Bank analyst Paul Trussell lowered his price target for Kohl’s to $19 from $23 and maintained his Hold rating. The analyst feels that management’s commentary about July sales trends, a soft start to the back-to-school selling season, and the crucial holiday season lead to concerns around comparable sales for the remainder of the year.

Kohl’s stock was down 58% year-to-date as of August 31 and the average analyst price target of $19.25 suggests a further downside of about 10% in the stock over the next 12-months. The Street has a Hold consensus for Kohl’s stock based on 1 Buy, 6 Holds and 2 Sells. 

Burlington Stores (BURL)

Off-price retailers have been giving a tough time to several other retailers, especially department stores, over the past few years. Attractive discounts and a treasure-hunt kind of experience offered in off-price stores have helped TJX Companies, Ross Stores and Burlington Stores win several customers.

However, the pandemic didn’t spare off-price retailers too as stores were temporarily shut to curb the virus. Burlington Stores’ fiscal second-quarter sales fell 39% Y/Y to $1.0 billion, reflecting the impact of stores closed when the quarter began.

The company experienced strong clearance sales when the stores started reopening in mid-May due to pent-up demand. However, the trend weakened in late June and July as the company struggled to replenish the depleted inventory. Overall, the top-line weakness led to an adjusted loss per share of $0.56 compared to an adjusted EPS of $1.36 in the second quarter of the prior fiscal year.

Unlike many retailers, Burlington Stores is continuing with its store expansion efforts and plans to open 37 stores in the fiscal third quarter and 62 in the full fiscal year. It also intends to close or relocate 26 stores in fiscal 2020.    

On the brighter side, the off-price retailer has been experiencing a significant improvement in sales trends since mid-July as it brought back its inventory levels. Yet, Burlington Stores expects fiscal third-quarter comparable sales to decline by about 20% as uncertainty continues to impact the back-to-school season buying.  

Despite the significant decline in the key metrics, Burlington Stores’ second-quarter results were better than analysts’ predictions. RBC Capital analyst Kate Fitzsimons raised her price target for Burlington Stores to $235 from $225 and maintained his Buy rating.

The analyst believes that the company’s sales outlook is likely to prove conservative as its logistics issues improve. She believes Burlington Stores’ off-price evolution should accelerate on the other side of COVID related disruption. (See BURL stock analysis on TipRanks)

The Street shares Fitzsimons’ bullish sentiment and has a Strong Buy consensus for Burlington Stores with 10 Buys and 1 Hold. Burlington Stores stock was down 13.6% as of August 31. But, analysts see an upside of 19.2% as implied by the 12-month average analyst price target of $234.78.

The Street is on Burlington Stores’ side

Both Kohl’s and Burlington Stores are likely to benefit from the bankruptcy of retailers like JCPenney. However, it might take quite some time for retailers to bounce back to pre-pandemic levels as huge uncertainty prevails around COVID-19. Notably, off-price retailers like Burlington Stores can make opportunistic purchases at attractive prices as several retailers are canceling their orders from vendors.

Right now, Burlington Stores appears to be in a position to recover faster than Kohl’s, as reflected in the Street’s consensus and potential upside in the stock.

To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.

Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment

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