Cost cuts, exclusive brands drive Kohl's 3Q profit

AP News
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Posted: Nov 12, 2009 12:50 PM

Kohl's said it is set to battle it out for market share during the upcoming holiday season, as it reported Thursday that consumers responded to its exclusive brands and moderate prices and sent profit up 21 percent in the third quarter.

As the economy makes tentative steps toward a recovery, midpriced chain Kohl's has fared better than higher-priced department stores. Kohl's said it saw an increase in customers in the third quarter.

Sales in stores open at least one year _ considered a key measure of a retailer's health _ rose 2.4 percent during the three months ended Oct. 31. That was fueled by more transactions rather than an increase in transaction size, however, indicating that while there might be more customers, they are still spending less.

Still, it is the first rise in the sales figure since the second quarter of 2007, even though it's against a weak comparison with last year.

The results led the department-store chain to raise its full-year earnings guidance. But CEO Kevin Mansell said he expects consumers to "continue to be conservative" in their spending over the holidays.

"People are still very careful with their pocketbook," Mansell said in a telephone interview with The Associated Press. "We're not able to convince them to buy that extra thing. It's more mission shopping, really."

Basics like coats and underwear continue to outperform fashion categories in women's apparel, he added. And while accessories are strong sellers, sterling silver jewelry continues to outperform higher-priced items.

Kohl's has benefited from its expansion of exclusive brands like Dana Buchman, Simply Vera Vera Wang, and LC by Lauren Conrad, which launched in October, as well as cost-cutting and the shuttering of competitors like Mervyn's.

The company said it is accelerating the rollout of the LC by Lauren Conrad label from the 300 stores it occupies currently to all 1,059 stores nationwide in March, from an earlier goal of by next fall.

Stifel Nicolaus analyst Richard Jaffe said consumers are responding to Kohl's nationally recognized brands like LC Lauren Conrad, Dana Buchman and others. Some of its brands, such as Dana Buchman, used to be sold at more upscale department stores like Saks Fifth Avenue, but have been reinvented for more frugal Kohl's shoppers.

Others, like Simply Vera by Vera Wang, are lower-priced lines from high-end designers.

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"We believe that the consumer finds greater value in nationally recognized brands that they perceive have higher quality, greater fashionability and more status," he wrote.

Profit for the three months ended Oct. 31 rose to $193 million, or 63 cents per share, compared with $160 million, or 52 cents per share last year.

Revenue rose 7 percent to $4.05 billion, from $3.8 billion a year ago. Analysts expected earnings of 61 cents per share on revenue of $4 billion, according to Thomson Financial.

Kohl's, based in Menomonee Falls, Wis., raised its full-year earnings guidance to $2.98 to $3.08 per share, from previous guidance of $2.59 to $2.70 per share. Analysts expect a profit of $3.02 per share.

In the fourth quarter, it expects total sales to rise 3 percent to 6 percent, implying sales of $5.4 billion to $5.55 billion. The company expects a profit of $1.14 to $1.24 per share for the fourth quarter, just short of analyst predictions of $1.25 per share.

Shares rose 6 cents to $54.65 during midday trading.