Nov 15, 2009
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Kohl's edges up; outlook falls short

Nov 15, 2009

Photo: www.kohls.com

By Phil Wahba

NEW YORK (Reuters) - Department store operator Kohl's Corp (KSS.N) reported a larger-than-expected quarterly profit on Thursday 12 November but forecast results for the holiday season below Wall Street estimates.

Chief Executive Kevin Mansell told Reuters he expects consumers to remain cautious in their holiday shopping, so the company is looking at new areas in which to offer exclusive brands, such as men's apparel and women's accessories.

"We recognize that in a lower spending environment that this is going to be all about winning market share," he said in an interview.

Top department store chains are trying to tone down expectations for a major consumer comeback during the holidays.

On Wednesday 11 November, shares of Kohl's rival Macy's Inc (M.N) fell 8.1 percent as its projections for the final quarter of the year disappointed Wall Street.

Kohl's shares fell 3 percent on the Macy's report and were slightly higher on Thursday 12 November.

Kohl's said net profit rose 20 percent to $193 million, or 63 cents a share, in the third quarter that ended October 31, from $160 million, or 52 cents a share, a year earlier.

Analysts' average estimate was 61 cents per share, according to Thomson Reuters I/B/E/S.

Sales rose 6.5 percent to $4.1 billion, just above analysts' average estimate of $4.0 billion. Sales at stores open at least a year were up 2.4 percent.

Sales growth was fueled by higher-margin exclusive brands, which include the Simply Vera Wang and Dana Buchman women's clothing lines and made up 45 percent of sales during the quarter.

Kohl's forecast earnings of $1.14 to $1.24 per share for the fourth quarter. Analysts on average were expecting $1.25.

The company expects sales to rise 3 percent to 6 percent in the fourth quarter, with same-store sales ranging from a 1 percent decline to a 2 percent gain.

Kohl's shares were up 10 cents to $54.69 in afternoon trading on the New York Stock Exchange.


The strength of Kohl's brands and its price positioning in the recession have protected it, an analyst said.

"Kohl's has continued to outperform most other department stores in terms of same-store sales, and it is a value-oriented chain," said Matt Arnold, an analyst with Edward Jones.

"Most retailers realize there is plenty of uncertainty in terms of consumer demand and how aggressive competitors could be with discounts in the fourth quarter," he said, explaining the chains' cautious profit projections.

As with other retailers, Kohl's has managed inventory more tightly in the past year to avoid having to sharply discount merchandise as it did in 2008.

Department stores have only recently begun to see sales stabilize. Last week, Kohl's reported same-store sales had risen 1.4 percent in October.

Kohl's said it operated 1,059 stores at the end of the third quarter, up from 1,004 a year earlier. It said it plans to open 30 new stores in 2010, up from a previous forecast of 20 to 25.

The new stores will include six converted former Mervyns locations. Last year, Wisconsin-based Kohl's acquired 31 stores from the bankrupt Mervyns chain.

Mansell said Kohl's plans to take advantage of an "opportunistic real estate market" to own more of its stores. He said market conditions made it more likely there would one day be a Kohl's store in Manhattan, though he declined to say whether any location scouting efforts were under way.

(Reporting by Phil Wahba; Editing by Matthew Lewis and John Wallace)

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