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Stock Analyst Update

Kohl's + Amazon = A Win-Win?

The new pilot programs are a unique way to draw foot traffic into Kohl's stores and to expand reach to new customers and give Amazon low-risk access to a brick-and-mortar presence.

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No-moat  Kohl's (KSS) has announced that beginning in October, 82 stores in Los Angeles and Chicago will be offering a free service to pack and ship returns for Amazon customers. This announcement came close on the heels of news that 10 Kohl’s stores will be hosting a new Amazon "smart home" experience.

We think that this is a unique way to draw foot traffic into stores and to expand reach to new customers, while giving Amazon low-risk access to a brick-and-mortar presence. Therefore, we can envision this pilot program eventually being spread to more locations.

We expect to increase our $42 fair value estimate by 5%-7% to reflect same-store sales improving to the low-single-digit range over the next three years, versus our prior estimate calling for a 1% average same-store sales decline as a result of traffic gains. We view the new business as having little material impact on margins. That said, we think this upside is already priced into the stock and we continue to view shares as fairly valued.

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Bridget Weishaar does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.