DANIEL GENTER
CHIEF INVESTMENT OFFICER
RNC GENTER CAPITAL MANAGEMENT

COMPANY: Kohl’s
TICKER: KSS (NYSE)
PRICE: $51.17 (as of 4 p.m. yesterday)
52-WEEK RANGE: $42.78-$58.90
MARKET CAPITALIZATION: $17.64 billion

Daniel Genter is the chief investment officer at RNC Genter Capital, and helps manage about $2.2 billion in assets for high net worth individuals and institutions. Kohl’s is a specialty department store operator with more than 700 stores nationwide. Mr. Genter spoke to David Dalley of The New York Sun.

What does Kohl’s do?

They’re a family-oriented specialty department store, primarily in the Midwest, mid-Atlantic, and Northwest. They feature high-quality national brand merchandise – apparel, shoes – with a focus on middle-income customers.

Why do you like the stock?

It’s a pretty exciting company right now. They’re expanding very rapidly in terms of store numbers and locations, and in terms of the name brand clothing lines they have. They’re catching on very strongly with consumers.

They entered Florida in 2005,they’re entering the Northwest in 2006, and they expect to add 75 stores overall this year. The goal is 200 additional stores over the next two years. As well as expanding, they’ve added some really hot new clothing lines to their selection. They’re very good at working out which lines are going to be popular.

What do earnings look like going forward?

We think we’ll see about 18% growth over the next year. We’re expecting three- to five-year earnings-per-share growth to be somewhere around 19%. The forward P/E is 14.7. Trailing is about 17.4. So it’s about a half a click below the S&P on future earnings. It also pays a reasonable dividend.

What is the industry like right now?

Retail stocks have been beaten up lately. Everyone’s concerned that the consumer will fall off a cliff, and retail stocks have been under a lot of pressure as a result.

What is Kohl’s doing differently? How is it avoiding the pressure facing the rest of the market?

It’s all about the merchandising. They have cutting-edge lines, their layout is very logical, and they target a very good market segment. It’s not the real low-end consumer, which is very sensitive economically, and it’s not the real high-end buyer, either – which is a very fickle market. They target the middle-income consumer.

Other retailers which have been suffering, such as Gap, have been plagued by the fact that their lines get stale. Since Kohl’s doesn’t have any specific name items, they can be much lighter on their feet. They have quite a lot of rotation and can move lines in and out very quickly based on what the market wants.

You said that many people are predicting that consumers will fall off a cliff economically. How do you think the consumer will fare going forward?

We are going to see some slowing in consumer spending, but more likely in large durables, for example, automobiles and housing. Basic items from the non-durable area should continue to be strong. Kohl’s has positioned itself very well to withstand a downturn in spending if that occurs. Being mid-level, they’re at the center of the consumer bell curve. If people start spending less, certain consumers might drop away, but then you have other consumers who might have spent more on a high-end item stepping down to Kohl’s.

What is the stock worth?

We’re looking for a ‘full value’ of $68 and a ‘basic value’ – a number it certainly should be able to achieve – of $60 within the next 18 months. That’s a 20% to 22% upside at the least.