Kohl’s shares jumped 13.4% on Tuesday after the department store chain announced a long-term strategic partnership with Sephora to open “Sephora at Kohl’s” locations within the company’s stores in an effort to boost its beauty business. Sephora is owned by the luxury group LVMH Moët Hennessy Louis Vuitton.
The 2,500 square foot Sephora in-stores will initially open within 200 Kohl’s (KSS) locations in fall 2021 and then expand into at least 850 stores by 2023. Kohl’s will also offer Sephora’s prestige beauty products on its e-commerce site next year. Sephora at Kohl’s shops will replace Kohl’s existing in-store beauty assortment. They will be positioned at the front of the store to provide maximum exposure for Sephora’s brand partners and will offer over 100 beauty brands.
Kohl’s partnership with Sephora comes at a very crucial time when retailers, especially department stores, are struggling due to weak consumer spending amid the pandemic and rising competition from e-commerce players. (See KSS stock analysis on TipRanks)
Meanwhile, Guggenheim Securities analyst Robert Drbul increased his price target on Kohl’s to $40 from $35 and reiterated a Buy rating in reaction to the partnership with Sephora. Drbul feels that the deal is in line with Kohl’s new strategic framework, which highlights beauty as a key growth opportunity. The analyst expects the Sephora deal to address Kohl’s weakness in skincare and color categories while further strengthening the department store’s position in fragrance.
In a note to investors, Drbul summarized, “Overall, we expect Sephora to drive traffic, particularly with a younger customer, and support top-line growth. Sephora could also create a halo effect for the rest of the store, particularly on Kohl’s sluggish Women’s business.”
The rest of the Street is currently sidelined on the stock, with a Hold analyst consensus based on 1 Buy, 7 Holds and 2 Sells. The average price target stands at $31, implying the stock could fall 15.1% in the months ahead. Shares are already down 28.3% year-to-date.
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