Kohl’s earnings up but shares down amid economic head winds

Question: I am a shareholder of Kohl’s Corp. and want to know if I can expect better performance from the stock.

Answer: The reality for the nation’s department stores and their investors in 2011 is that high cotton prices are raising the cost of apparel and high gasoline prices are constricting shopper budgets.

Shares of Kohl’s (KSS) were down 7.5% this year through Friday.

But the company’s first-quarter earnings were up 6% compared with the previous year, even though it was hampered by markdowns and weak demand for spring merchandise.

Kohl’s board of directors in February announced the first cash dividend to common shareholders in the company’s history, a quarterly payment of 25 cents a share paid in March. It also increased its share repurchase authorization by $2.6 billion, to $3.5 billion.

Kohl’s operates about 1,100 stores that are in every state but Hawaii, focusing on mid-priced apparel, accessories, beauty and home products. It has benefited from cost cutting, store remodeling and new stores with smaller, more productive square footage.

It also is expanding its lucrative private-label brands, including a new line of apparel from Jennifer Lopez and husband Marc Anthony this fall.

The consensus analyst recommendation on Kohl’s stock is “buy,” according to Thomson Reuters, consisting of 12 “strong buys,” four “buys” and six “holds.”

Zacks Equity Research, which has a “hold” recommendation, said “increased competition from Target Corp. is a concern.”

Kohl’s retail website experienced a sales increase of about 50% last year over the previous year, the company said.

Vanguard Precious Metals fund more adventuresome than some

Question: I like the idea of precious metals and wonder whether Vanguard Precious Metals and Mining Fund is the way to go. Pros and cons?

Answer: It is no secret to investors that precious metals and their stocks can be highly volatile. Yet this fund, which recently boasted a 15-year annualized return of 10%, is more adventuresome than some because it likes upstart firms and has a highly concentrated portfolio of 48 stocks.

Its experienced managers prefer to invest in countries that have stable governments, but they are willing to take a chance if the stock price is right. They favor firms with solid management teams and clean balance sheets.

The $5.5-billion Vanguard Precious Metals and Mining Fund (VGPMX) was up 37% over the last 12 months to rank at the top of the precious metals stock category. But its three-year decline of 12% through Friday put it near the bottom of the category.

“The portfolio managers tend to wade into some stocks that have a lot of political instability, so this is definitely not a core portfolio holding, and should only make up a few percent of an individual’s portfolio,” said Rob Wherry, mutual fund analyst with Morningstar Inc.

He said two of the fund’s top holdings — Newmont Mining and Hochschild Mining — “have exposure to places like North Africa and Russia, which have political uncertainties.”

The mandate of the fund was changed in 2004 to permit investment in a wider array of mining firms whose products include coal, uranium and nickel. Other top holdings include Iluka Resources, Centerra Gold Inc., Lonmin and Oz Minerals.

This “no-load” (no sales charge) fund requires a $3,000 minimum initial investment and has a low annual expense ratio of 0.27%.

Andrew Leckey answers questions only through the column. Write him at yourmoney@tribune.com.