Kohl's Rises on News of Amazon Returns Expansion

In news on Tuesday, we were greeted this morning with an exciting update to the Kohl's (KSS) -Amazon (AMZN) partnership.

Taking a step back for a moment, recall that Kohl's has partnered with Amazon on two initiatives: a pilot program where you can return Amazon bought items at Kohl's stores free of charge; and a wholesale relationship where customers can buy Amazon devices within Kohl's stores. The former program existed within 100 stores, while the latter program was extended on the recent earnings call from 30 stores to 200. Even though investors were left wanting more information on the returns program on that conference call, management said to stay tuned and we did just that.

What did management come back with?

Kohl's announced this morning that its Amazon returns program will expand nationwide. Per the company's press release, Kohl's will accept eligible Amazon items, without a box or label, and return them free of charge at more than 1,150 locations across 48 states starting in July. This is a huge step up from the current 100 store program, meaning that Kohl's must like the store traffic results it has seen with roughly one year's worth of data.

Remember, one of the toughest challenges in bricks and mortar is to get your customer in the door. This program provides Kohl's a solution to this problem. It entices those Amazon customers who need to return goods, but want an easy and convenient way of doing it, to step into Kohl's stores. Once inside, the Kohl's value proposition and store concepts take over, converting the additional foot traffic into sales.

Speaking to the pilot return program on the fourth quarter 2018 conference call CEO Michelle Gass said, "I think the most important thing that we're seeing is how excited our customers and the Amazon customers are about the service."

Following up today Gass said, "We are thrilled to bring Amazon Returns at Kohl's to all of our stores across the country. Amazon and Kohl's have a shared passion in providing outstanding customer service, and this unique partnership combines Kohl's strong nationwide store footprint and omnichannel capabilities with Amazon's reach and customer loyalty. This new service is another example of how Kohl's is delivering innovation to drive traffic to our stores and bring more relevance to our customers."

In addition to the pilot expansion, Kohl's will issue warrants to Amazon and give them the right to purchase up to 1,747,441 shares of KSS (roughly 1% of the float) at an exercise price of $69.68. We do not know what Amazon plans to do with these warrants, however, the prospects of the "Death Star" owning a stake in Kohl's and having them in their corner can only be positive.

KSS stock is acting very favorably to this news, trading around 8% higher at the time this was written. As a reminder, we bought 100 shares of KSS and upgraded our rating to a One on Monday in our Alert here as we felt the stock's ~4% intraday decline on the prospect of soft first quarter wrongly overshadowed all of the traffic-driven initiatives management has in place.

When it came down to the company's next conference call, we believed KSS was more likely react to management's innovative strategies compared to weather-related weakness. When push comes to shove, the longer-term story will shine over the weather-related anomalies.

The timing of our buy and this announcement was purely coincidental, but serves as a reminder of why you must buy the stock of a company with a terrific, initiative-driven management team when it gets too cheap (yesterday KSS traded at a forward multiple of 11.6x earnings with a 4.00% yield).

Action Alerts PLUS, which Cramer manages as a charitable trust, is long KSS and AMZN.