4 Reasons To Avoid Kohl’s
With new cases of the coronavirus spiking in the US and worldwide .
With the already historic unemployment levels and job losses in recent months .
And with many Blue Chip stocks looking vulnerable when they’re supposed to be among the best areas to invest your capital.
There are few safe places to invest your capital today. And this number is growing smaller every day this crisis lasts.
The key to continue compounding your investments and build wealth is to keep investing well over time.
Most people think the number one way to do that is to invest in assets that will grow your capital over time.
And this is huge part of things.
But another huge part of this is also losing as little capital as possible.
The fewer investment losses you have the more capital you keep. And the more capital you keep the faster you can invest well to grow your wealth.
In recent articles I’ve shown you several stocks to avoid investing in…
- 1 More Reason To Avoid Burlington Stores
- 2 Reasons To Avoid Home Depot
- 3 Reasons To Avoid Target
- 2 Reasons To Avoid Lowe’s
- 5 Reasons To Avoid Hilton
- 1 Reason To Avoid Tesla
- 2 Reasons To Avoid Netflix
- 2 Reasons To Avoid GM
- 2 Reasons To Avoid Nike
- 2 Reasons To Avoid Starbucks
- 1 More Reason To Avoid GE
Today I want to show you another stock to avoid at all costs.
4 Reasons To Avoid Kohl’s Stores Stock
- It’s Got A Lot Of Debt
As a percentage of its balance sheet, Kohl’s Stores (KSS) looks fine… But it’s not.
As of the most recent quarter its balance sheet is made up of 68.3% of total liabilities. And its debt to equity ratio is 1.54.
I want to invest in safe stocks that will be around for decades to come to help me build wealth over the long term. This helps insure I lose as little money as possible over time.
I usually invest in companies that have debt to equity ratios at 1 or below. So, Kohl’s is fine right?
When you look at its financial statements you see it has $7.73 billion in debt. Against a market cap of $3.74 billion.
Even when you subtract its $2.43 billion in cash, Kohl’s net debt position is $5.3 billion. Which is still higher than its market cap.
Having more debt and net debt than its market cap makes investing in Kohl’s enormously risky.
But there’s another thing that compounds this.
- It’s Not Producing Enough Profits and Cash Flow
In the most recent quarterly data Kohl’s is unprofitable on an operating income and net income basis. And is only profitable on a free cash flow basis because it issued $1.6 billion in debt in the most recent quarter.
These due to increased costs related and store closures related to the coronavirus which I’ll detail more below…
Its net income profitability margin in the trailing twelve months (TTM) period was negative 1.3%. Its operating profit margin was negative 0.01%. And its free cash flow to sales (FCF/Sales) margin in this same time was 3.9%.
EDITOR’s NOTE – Trailing twelve months just means the last 12 months consecutively.
Generally, you want these numbers to be as high as possible on the positive side because that means the company is generating profits and cash flow from its operations.
These important metrics are all far below what I look for to invest in a company.
And these lead to problems paying off debt which is shown with the interest coverage ratio.
This number now sits at 0.06.
Anything above 1 shows that the company can pay its debt with current profit levels. And anything below 1 shows the company will have issues paying debt payments.
This is why it took out another $1.6 billion in debt in the most recent quarter because it couldn’t keep operations running without the new debt.
The problem with low profitability combined with a massive amount of debt is dangerous by itself…
But there are still other reasons to avoid its stock.
- The Retail Apocalypse
The Retail Apocalypse is former great retailers like Sears, JC Penney, Macy’s, Bed Bath & Beyond, Burlington Stores, and others losing out to people shopping online and collapsing.
It’s impossible to give you exact stats on the following due to the slow decline of individual companies in the retail industry.
But millions of jobs have been lost. And thousands if not tens of thousands of stores have closed nationwide.
And it’s only going to continue with the rise of people shopping online and getting things delivered directly to their houses.
This has been going on for years… But retail store closures due to the coronavirus is accelerating this.
Since the start of the coronavirus pandemic in March the following retailers declared bankruptcy.
- JC Penney
- Brooks Brothers
- Lucky Brands
- J. Crew
- Neiman Marcus
A few retail stores like Kohl’s, Burlington, and Macy’s are hanging on as best they can by laying off employees and closing stores to conserve cash.
But it won’t work.
All these companies are likely to head to $0 at some point barring some kind of discounted buyout or the companies going private.
And speaking of the coronavirus…
That gets us to reason #4 to avoid Kohl’s stock.
- Uncertainty Related To The Coronavirus
This all circles back to the beginning and the coronavirus.
Air travel, hotels, and restaurants are still getting hammered.
But so are many other industries worldwide. And clothing retail stores are one of those industries.
Retail sales in general are way down from their high levels before the pandemic hit in March.
Clothing sales specifically are down 63.3% in the year to year period from May 2019 to May 2020.
And consumer spending stalled in August as the extra $600 per week government stimulus for unemployed workers ended.
“Traditional” retail stores like Kohl’s are in big trouble.
I recommend you stay far away from investing in this entire industry for the time being for the reasons above. But especially stay away from Kohl’s stock.
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Disclosure – Jason Rivera is a 13+ year veteran value investor who now spends much of his time helping other investors earn higher than average investment returns safely. He does not have any holdings in any securities mentioned above and the article expresses his own opinions. He has no business relationship with any company mentioned above.