Just as department stores are bouncing back from the recession, they are beginning to worry that sharply higher costs for cotton, fuel and other commodities could hobble their recovery.
Kohl's Corp. said Thursday that its fourth-quarter net income increased 14 percent as shoppers bought more shoes and men's clothing. But the mid-price chain also said its customers will remain cautious in 2011 _ and that could make coping with higher commodity prices more challenging for the company.
Kohl's forecast earnings for the current fiscal year below Wall Street's expectations.
In the fourth quarter, it earned $493 million, or $1.66 per share, compared with $431 million, or $1.40 per share, a year earlier.
This narrowly beat analysts' average forecast for $1.65 per share, according to FactSet.
Kohl's revenue for the period that ended Jan. 29 climbed 6 percent to $6.04 billion from $5.68 billion, just beating Wall Street's forecast for $6.03 billion.
Quarterly revenue at stores open at least a year rose 4.3 percent. The comparison is considered a key gauge of a retailer's fiscal health because it excludes stores that opened or closed during the year.
Kohl's shares rose $1.78, or 3.4 percent, to close at $53.80.
The company said its customers shopped more often and spent more on each item, but they bought less in total: Transactions per store rose 5.4 percent, but units per transaction fell 1.1 percent.
Kohl's, based in Menomonee Falls, Wis., announced its first-ever dividend Wednesday, and it said Thursday that it was boosting its stock repurchase program to $3.5 billion, a move that could help increase the value of its outstanding shares.
During the recession, department stores' sales plunged as consumers turned to discount stores and hunted for bargains. Their results have begun to improve, especially with new emphasis on exclusive brands. Private and exclusive brands like Dana Buchman for women and Hang Ten for teens now make up about 48 percent of Kohl's sales.
Kohl's CEO Kevin Mansell said accessories and children's clothing didn't sell as well as women's and junior shoes and men's clothing.
In the second half of 2011 Kohl's plans to launch two new exclusive brands: Jennifer Lopez women's clothing and accessories and a Marc Anthony men's line.
"The combination of the two brands is the largest brand initiative in terms of scope and investment we will have ever made," Mansell said.
He hopes "newness" of the brands will spark customer enthusiasm in the face of price hikes that begin this spring in the low single-digit percentage range.
"Those increases accelerate dramatically this fall, and costs are expected to be up significantly across all apparel categories, approximately 10 percent to 15 percent overall," he said.
"We ... have been working diligently to minimize the impact of these higher costs on a consumer that is still buying cautiously and, therefore, less open to paying higher prices for goods that are really discretionary," Mansell said.
He said the company has changed its sourcing and merchandising processes and will raise prices broadly to spread the impact.
It will continue to advertise its prices with its "The more you know, the more you Kohl's" campaign.
For the year, net income rose 12 percent to $1.11 billion, or $3.65 per share, from $991 million, or $3.23 per share, last year.
Revenue rose 7 percent to $18.39 billion from $17.18 billion last year.
For the first quarter, the company expects net income of 68 cents to 73 cents per share and a revenue increase of 4 percent to 6 percent, implying revenue of $4.20 billion to $4.28 billion. Analysts expect earnings of 71 cents per share and revenue of $4.17 billion, according to FactSet.
Kohl's expects fiscal 2011 earnings of $4.05 to $4.25 per share, compared with analysts' average forecast for $4.37 per share. It expects revenue to rise 4 to 6 percent, implying revenue of $19.12 billion to 19.49 billion. Analysts expect $19.36 billion.
"In 2011, we expect consumers to remain very interested in value and ways to make their dollars go further," said Mansell.