I despise shopping -- especially at department stores. Terrible music, hard-to-find bathrooms, overpriced merchandise, and perfume counters larger than the entire men's clothing section. Kohl's is a less painful experience, but will buying their stock hurt your purchasing power?

1. In 2007, Kohl's expanded its online shopping inventory. Kohls.com attracts 6.6 million shoppers a month, and a strong online presence could really help the bottom line.
2. Even in a difficult retail environment, stemming from the weak economy, the company is still extremely profitable, earning more than $1 billion in net income in 2007.
3. More than 90 percent of Kohl's stock is held by investment institutions (T. Rowe Price, Vanguard, State Street, etc.).
4. The company has several exclusive brand lines (Candie's, SimplyVera Vera Wang, daisy fuentes, Tony Hawk, etc.) that are generating strong sales for the company.
5. Kohl's used Avril Lavigne, Hayden Panettiere, and the Plain White T's to help sell its products in a 2008 back-to-school campaign. Using young stars shows that Kohl's has a feel for the social pulse of young America.

1. Net income decreased by 2.2 percent from 2006 to 2007, even though net sales increased 5.6 percent.
2. The company is taking a conservative approach this year because of the adverse economic conditions, so don't expect high returns.
3. In a 52-week range from October '07 to October '08, Kohl's share price has ranged from $36.81 to $63.97. This range of fluctuation makes it hard to predict where the price will go next.
4. Comparable store sales for the second quarter of 2008 were down 4.6 percent.
5. Because people have less money to spend, I'm expecting more products to be severely discounted, hurting margins.

Kohl's is one of the strongest department store chains, and it has solid management and a good business plan. But will the weak economy keep their stock linked to falling income?

1. The company's return on invested capital stands at 12 percent, generously above its cost of capital.
2. A debt over EBITDA (earnings before interest, taxes, depreciation, and amortization) ratio of about one and being cash-flow positive allows Kohl's to invest and generate more cash and profit.
3. Kohl's has been buying back shares and plans to continue to do so. This could add value to their stock if it's considered cheap at today's prices.
4. The nationwide introduction of exclusive brands like Elle and Food Network could help fill merchandise gaps in Kohl's stores and bolster profits.
5. Kohl's stock price has been lower than the S&P 500 and the industry indexes in the past year. Because it's already low, there may be a higher likelihood that the price will go back up.

1. The retail industry is highly competitive, and clothing and accessory stores like Kohl's are affected by changes in the economy and in tastes of consumers. Because the economy is already weak, if Kohl's guesses wrong on fashion trends, they could be in serious trouble.
2. Retail inventory is seasonal. The weak economy leaves the company at risk of being left with seasonal inventory it has to sell at discounted prices.
3. Kohl's net cash flow from investing was negative $1.5 billion in August 2008, but their net cash flow from operating was only $1.2 billion.
4. In 2007, Kohl's opened 112 stores, but new store openings are expected to decrease dramatically -- economic conditions require cutbacks.
5. Kohl's has seen some strong year-over-year net income declines.

Editor's Note:

brass is a quarterly publication, and as such, there could be significant information, news, or price changes that may differ from resources available at the time this article was written. All analysis is meant for educational purposes. You should not make decisions based on information contained in brass without the advice of a qualified professional advisor.

Sources:

quantcast.com; bizjournals.com; kohlscorporation.com; census.gov; forbes.com; finance.yahoo.com; fool.com; moneycentral.msn.com; investopedia.com; bls.gov; marketwatch.com; finance.aol.com; biz.yahoo.com; careerjournal.com; jsonline.com; kohls.com; Atlantic Equities