If a return to comp-sales growth were to boost Kohl's operating margin to 8.5% in 2018 -- well below the levels achieved a few years ago -- it would increase pre-tax income by 20%-25%. The recent reduction in the corporate tax rate will boost after-tax income by an additional 22% or so. Share buybacks would accelerate EPS growth even further.
The net result is that Kohl's EPS could very easily sail past $6 in the coming year. Free cash flow would be even higher due to tax benefits, disciplined capital spending, and Kohl's ongoing inventory reductions. As a result, Kohl's stock could have plenty of room to run.
Ross Stores has more upside, as well
If Kohl's is benefiting from strong consumer spending and favorable off-mall store locations, chances are that Ross Stores is in even better shape. While the rest of fashion retail was down in the dumps during the first three quarters of fiscal 2017, Ross Stores posted 4% comparable-store sales growth.