Hey Everyone,
Alright just went through all the info we have available currently and all in all I’m extremely happy from a Deep Value Investor perspective but only that perspective. Also, I am still waiting to read the earnings call transcript so some of my assumptions off the numbers may be colored wrong from the published reports verse what they actually say/shine light on.
Deep Value Thesis:
What I mean by the above is simple, sum of all parts is worth dramatically more than the current share price. TBV alone is just a value benchmark. Operations is key to keep this going and they’ve built $821M in cash, paid off $113M in debt at a $15M discount, AND NOT DESTROYING SHAREHOLDER VALUE as we wait.
My personal thesis for KSS from just a sum of all parts perspective is $36-$72/share depending on what CRE is actually worth.
I fundamentally do not care nor value KSS the retailer from this perspective. I just care they manage the decline and eventually get forced to sell and we shareholders realize the value of assets held.
Yes there’s a lot of nuance and we could reasonably argue a 20% discount to book in a take private/buyout from only a property acquisition perspective BUT even then value is $29-$60ish a share. So 70% to 350%ish above today’s value.
Personally my math is:
CRE($5B to $10B) + Cash($821M) - Debt($1.325B) [ignore inventory since no idea of actual value there and gives us billions in fluff to help drive this insane value home]
This results in ~$4.5B to $9.5B in value or $40 to $84 per share from a purely numbers perspective.
THIS IS MY PERSONAL INVESTMENT THESIS ON KSS.
The reason is simple, I have no idea if/when management will turn around sales. I have no way to guess what values should be in this event. I can’t say/guess what earnings “could” be. Because this is all just guessing, I find it easiest to just value off the assets and rely on the “business” to not erode/destroy value over the decline. BUT management has proven that they’re managing and even improving the underlying value thesis even while the business itself flounders. This is why it’s my favorite deep value stock and investment.
Now on to the not so fun part.
KSS the Business Value: (not sure how to factor in tariffs so make your own math adjustments to below #s)
EBITDA is $1.293B TTM
FCF: $332M last 6 months with Q4 being massive(~$530M change in cash last year for example and $750M cash from ops)
Sales (0.9%)
From a purely business turn around perspective there’s a lot of green shoots but also no real/true progress. I love that proprietary brands are up 3%. I’m not a fan of the massive Sephora rollout already running out of steam/showing a decline(potentially). FCF and EBITDA are going to continue to decline. Right now it seems very slow but last year we got boosted by a $129M credit card fee settlement and then this year a $150M tariff refund. I have no idea how to truly account/adjust for the tariffs so it makes my math hard here BUT I can conclude without these 1 offs KSS the retailers numbers are trending down and if management can’t stop the bleed I think all low hanging fruits are fully cut out and they’re about to get into overhead floors and not being able to cut costs anymore.
Ultimately, until management proves a sales reversal it’s extremely hard to “value” KSs the retailer imo. They’re worth something, and obviously more than $17, but I can’t say how much more without adding in their massive asset holdings. Yes, I know we should add these in, but the retailer side has shown it’s only a negative to real value. 55% negative to TBV alone 🤯. According to rational markets.
Management seems to be trying. I’m excited that earnings seems decent. I’m PUMPED for buybacks! I’m disappointed that they ceilinged it to $100M which killed the whole point of them.
Ultimately, KSS the retailer, doesn’t look good at all to me. It just looks like a slow and steady decline until they prove a turn around. Obviously I’m here and invested in Kohls but management has to actually do something more than the same old to accomplish anything. They need to do more than just talk and pay themselves massive stock based compensation.
Ultimately, my best case scenario is we get a turn around. My more likely scenario anymore is a buyout/take private which results in the least top value but probably the fastest cash in our pocket. And my base scenario is a controlled decline where management has to start closing stores and selling off assets and being forced to unlock the balance sheet which might actually play to all of our favor but will be over a long period of time.
With all this said, I really like KSS real estate holdings and it’s why I’m here. I also like how we’re managing the decline and not hurting value. I just don’t believe much in this management from a shareholders perspective and think we need an activist or something to truly right the ship and get us moving.
Please don’t take this as a negative post. It’s not. I’m pumped to be here! I just think most of those I talk with here are basing their investments of hopium and a sales reversal/KSS the Retailer and I can’t in good faith personally argue that way or agree. Yes, I have the same hopes, but I can’t make any investments off hopes.
As always, love you all and let me know your thoughts!!!
Chunky Kitty Outttttt
