Kohl's Reverses Breakdown as Amazon Partnership Pays Off

Kohl's Corporation (KSS) shares rose more than 8% on Tuesday morning after the retailer expanded its partnership with Amazon.com, Inc. (AMZN). The Amazon Returns program enables Amazon customers to return their unpackaged goods to Kohl's stores, which then package and send all returned items to Amazon. The retailer also carries Amazon products in more than 200 of its stores throughout the Midwest.

Earlier this month, Bank of America Merrill Lynch noted that department store sales rose 1.7% year over year in March. The analyst cited improving weather and a catch-up in tax refunds as reason for the increase, but it remains cautious, with Underperform ratings for most companies in the space. The exception is Kohl's, for which the firm reiterated its Buy rating on expectations of strong revenue and earnings growth.

Kohl's management expects to see comparable store sales growth of nil to 2% for fiscal 2019 along with a 10-basis-point improvement in gross margins. The company also plans to repurchase $400 million to $500 million worth of shares in an effort to unlock shareholder value over the long term.

From a technical standpoint, the stock broke down from its price channel and 200-day moving average at around $70.00 earlier this week before rebounding sharply following news of its expanded partnership with Amazon. The relative strength index (RSI) remains near neutral levels with a reading of 57.99, while the moving average convergence divergence (MACD) could see a bullish crossover. These indicators suggest that the stock could have more room to move higher.

Traders should watch for a move toward R2 resistance at $74.82 or upper trendline resistance at $76.00. If the stock breaks back below R1 resistance at $71.80, traders could see a move lower to retest trendline and 200-day moving average support levels at around $70.11, although that scenario appears less likely to occur given the bullish sentiment.

The author holds no position in the stock(s) mentioned except through passively managed index funds.