Image via Mike Mozart/Flickr CC

Founded in 1927, Kohl’s Corp. (KSS) has grown to a market cap of $7.1 billion, annual sales of $19 billion, and 1,154 locations, notes income specialist Ben Reynolds, editor of Sure Dividend.

In the fiscal 2017 second quarter, the company reported a modest 0.9% decline in sales, but cost-cutting initiatives and share repurchases helped Kohl’s bottom line perform better.

Perhaps most importantly, Kohl’s comparable store sales declined just 0.4%, significantly better than the 1.4% decline expected by the analyst community.

The company also announced the intent to open four small format stores and its fifth eCommerce fulfillment center. These investments, which are expected to be completed during the already-underway third quarter, underscore Kohl’s strategic emphasis on the omni-channel shopping experience.

Kohl’s competitive advantage comes from the nature of its store base. Approximately 90% of Kohl’s locations are free-standing or located in strip malls, which helps isolate the company from the trend of declining mall traffic.

Kohl’s recession resilience is on par with many other retailers; the company’s adjusted earnings-per share dipped by 14.7% during the 2007-2009 financial crisis and recovered to a new high in just two fiscal years.

Regarding the company’s high yield, Kohl’s dividend appears safe for the foreseeable future.

The company currently pays a quarterly dividend of $0.55 per share and reported adjusted earnings per share of $1.24 in the most recent quarter for a payout ratio of just 44%.

Kohl’s future growth will be driven by the transition to an omni-channel shopping experience. Key to this initiative is the company’s ship-from-store and pickup-from-store online shopping capabilities, which simultaneously boosts online sales and reduces the need to build external distribution centers.

Kohl’s traded at an average price-to-earnings ratio of 14.3 over the past 10 years and an average price-to-earnings ratio of 13.8 over the past 5 years. The company is expected to earn about $3.60/share in fiscal 2017, which implies a P/E ratio of 11 at current prices.

If Kohl’s can deliver a few quarters of comparable store sales growth, the company’s valuation could easily revert back to its long-term average of about 14x earnings (a price of $50), 25% upside from the current $40 price.

Ben Reynolds is the owner and editor of Sure Dividend.

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