KSS - Valens Credit Report - 2024 02 20
Credit markets are materially overstating KSS' credit risk with a YTW of 8.623% and CDS of 465bps, relative to an Intrinsic YTW of 6.652% and an Intrinsic CDS of 234bps. Furthermore, Moody's is overstating the company's fundamental credit risk, with its speculative Ba2 credit rating four notches lower than Valens' IG4+ (Baa1) credit rating.Incentives Dictate Behavior™ analysis highlights positive signals for credit holders. Management's compensation
framework should drive them to focus on all three value drivers: margin expansion, asset efficiency, and top-line growth, which should lead to Uniform ROA expansion and increased cash flows available for servicing obligations. In addition, most management are material owners of KSS' equity relative to their annual compensation indicating they may be aligned with shareholders to pursue long-term value creation for the company. Furthermore, management has low change-in-control compensation relative to their average annual compensation indicating they may not be incentivized to pursue a takeover or accept a sale of the company, decreasing event risk for creditors.
Earnings Call Forensics™ of KSS's Q3 2023 (11/21/2023) earnings call highlights that management is confident beauty sales in their shops is up 30% and that their pet business grew by 40% in Q3. In addition, they are confident customers will allocate more spend at Kohl's due to their initiatives, that they are scaling account purchases more meaningfully, and that they are making sure their stores have a gifting presentation for the holidays. Lastly, management is confident they have reduced digital-related costs of shipping and that SG&A cost increases were lower than expected.
Kohl's operates department stores, a website (www.Kohls.com), FILA outlets, and Off-Aisle clearance centers. The company's Kohl's stores and website sell proprietary and national brand apparel, footwear, accessories, beauty and home products. The company's website includes merchandise that is available in its stores, as well as merchandise that is available only online. The company's portfolio includes private brands such as Apt. 9, Croft & Barrow, Jumping Beans, SO and Sonoma Goods for Life and exclusive brands that are developed and marketed through agreements with brands such as Food Network, LC Lauren Conrad, Elle and Simply Vera Vera Wang.
In 2009, just as the dust was settling from the last major equity and credit market crises, we launched a boutique research firm with the intention of breaking Wall Street’s biases and broken incentives:
- GAAP and IFRS have failed to provide rules for reliable financial statement reporting
- Stock analyst recommendations are not grounded in disciplined financial analysis
- Credit agencies have been set up to grossly fail in their responsibilities to investors and the public markets
- Utter lack of willingness of major research firms to employ the the most advanced forensic analysis available
We sought to provide investors and company analysts with a source of information that changed all that.
Many years later, our business model remains because little has changed on Wall Street.
- Corporate credit ratings remain years behind the fundamental underpinnings of company performance
- Stock analysts continue to make recommendations with deeply inherent biases
- Research firms have failed to break down the walls between credit, equity, and macroeconomic research
- The governing accounting bodies have created more leeway for mis-estimates and mis-classifications as financials have become unwieldy and overwhelming
The integrity of Valens Research is founded in our disciplined processes and analytics. No “star” analysts. No corporate advisory relationships. No-nonsense opinions and recommendations.
Unfortunately, this report is not available for the investor type or country you selected.
Browse all ResearchPool reportsReport is subscription only.
Thank you, your report is ready.
Thank you, your report is ready.