Dive Brief:

• Cowen analysts lowered their rating and target price for Kohl's shares, according to a Wednesday report emailed to Retail Dive.
• They analysts cited "traffic volatility," increased discounting, weakness in women's apparel, weather sensitivity, appeal to younger shoppers and the department store's troubles improving its comp sales and margins. Cowen lowered its rating for Kohl's stock to "market perform" and decreased its price target for shares by about 5%, to $53.
• Working in Kohl's favor, according to the analysts, are strength in the active category, a "leading" loyalty program with 30 million members, its largely off-mall footprint, a "compelling digital platform" and omnichannel experience, "innovative partnerships," and use of data to personalize.

Dive Insight:

Unlike some department store rivals — think Sears and J.C. Penney — Kohl's carries far less baggage than many of its peers. Its balance sheet is cleaner, its income is positive and, perhaps most importantly in the long run, it is not tied to nearly as many declining and dying malls. 

With more financial flexibility, the retailer, under CEO Michelle Gass, has undertaken numerous efforts to innovate and boost sales, improve its assortment, and make its omnichannel operations and supply chain more efficient.

And yet, Kohl's has struggled to consistently grow its comps, margins and sales. The retailer's tepid sales point to just how tough it is to win in the department store sector these days. 

The Cowen analysts wrote that Kohl's store traffic "will remain under pressure as customers continue to transition to shopping online and at other retail peers." In the same breath they also pointed out that the retailer's comps have surpassed 1% just three times in the past 15 quarters going back to Q1 2016. For all of 2016 and parts of 2017 and 2019, comps were negative.

The department store's partnership with Amazon is promising as a driver of traffic, but it's still unclear what the long-term impact will be. 

Kohl's margins are also under pressure as it turns more sales over to its digital store. The Cowen analysts noted margin pressure from "fulfillment costs associated with digital penetration headwinds." 

Discounts are also a problem for margins. On that front, Kohl's just went through what may be the most promotional holiday season in retail since the recession. A recent note from MKM Partners noted "shocking" store discounts during the period, with sales promotions especially high at department stores and mall retailers in their orbit. 

In the long term, Cowen analysts also wrote that Kohl's needs to find ways to make its sales less sensitive to weather trends and to win over younger and female shoppers, who "remain captivated by off-price shopping options, do not want overly confusing or complex promotions, and are increasingly interested in the circular/resell economy."

The analysts added that Kohl's "will need to face these preferences with new brands, store navigation tests, visual merchandising, and ongoing onmnichannel convenience factors."