Barclays cuts Kohl’s stock rating to Underweight, target at $4

On Monday, Barclays (LON:BARC) initiated coverage on Kohl’s shares, assigning an Underweight rating with a price target set at $4.00, near the stock’s current price of $7.06. According to InvestingPro data, the stock has fallen over 68% in the past year and trades at just 0.21 times book value, suggesting significant undervaluation. The new rating reflects concerns over near-term challenges faced by the retailer, including cost pressures stemming from tariffs and expected price increases. These issues are anticipated to exacerbate an already tough second half of 2025 and the first half of 2026 for Kohl’s, as the company completes the integration of Sephora store openings.

Kohl’s has achieved an 89% penetration with Sephora as of the fourth quarter of 2024 and is projected to reach full penetration by the end of the fiscal year 2025. Despite this expansion, Barclays points to broader shifts in consumer shopping habits that are likely to continue affecting the retailer’s long-term position. The competition from off-price retailers, mass channels, and direct-to-consumer (DTC) brands is expected to persist, leading to further market share losses for Kohl’s.

The company’s financial leverage, including operating and finance leases, is also a concern, particularly with upcoming maturities of $352 million in bonds due in 2025. With a debt-to-equity ratio of 1.88 and total debt of $7.16 billion, the company’s leverage metrics warrant attention. Plans for refinancing are on the horizon, yet the current margin pressures, reflected in a 40.44% gross profit margin, complicate the retailer’s financial maneuverability. According to Barclays, these margin challenges not only make it difficult for Kohl’s to manage additional cost shocks but also limit its ability to make necessary reinvestments to stimulate sales growth.

Barclays’ commentary underscores the multiple headwinds Kohl’s is facing, which could impact its ability to navigate the retail landscape effectively. Despite these challenges, the company maintains a 7.08% dividend yield and has sustained dividend payments for 15 consecutive years. The combination of increased costs, competitive market dynamics, and financial obligations presents significant obstacles for the company in the near term, as reflected in the analysts’ consensus recommendation of 3.47 (between Hold and Underperform).

In other recent news, Kohl’s Corporation (NYSE:KSS) is facing significant challenges as Fitch Ratings downgraded its credit rating from ’BB’ to ’BB-’, citing ongoing operational difficulties and a negative outlook. Fitch anticipates that Kohl’s earnings before interest, taxes, depreciation, and amortization (EBITDA) could decline by 15% to 20% in 2025, with revenue projected to fall by about 6% to the low-$15 billion range. In response to these challenges, the company plans to invest $400 million in capital expenditure to support growth initiatives. Analysts have also adjusted their outlooks, with UBS maintaining a Sell rating and cutting its price target to $5, expressing concerns about Kohl’s competitive position and future earnings. Citi has lowered its price target to $8 from $11, highlighting Kohl’s underperformance in comparable sales and a bleak fiscal year 2025 outlook. TD Cowen also reduced its price target to $8, noting necessary changes in Kohl’s strategy, despite a fourth-quarter earnings per share (EPS) increase. UBS further emphasized a negative outlook, forecasting Kohl’s EPS for fiscal year 2025 to be 80% lower than consensus expectations. These developments underscore the challenges Kohl’s faces in stabilizing its market position and financial performance.

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