Kohl's 1Q profit climbs, lifts full-year outlook

AP News
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Posted: May 12, 2011 1:08 PM
Kohl's 1Q profit climbs, lifts full-year outlook

Kohl's Corp.'s first-quarter net income climbed 6 percent as its move to control expenses like inventory and strength in its store-label brands made up for a more modest revenue increase overall.

The company also raised its full-year earnings outlook Thursday, partly on optimism it will be able to pass on higher costs for raw materials like cotton.

Lingering cool temperatures in the Northeast and Midwest chilled sales of seasonal items like clothing. But the department store retailer said it expects clothing sales to improve as the weather warms up.

"We have strengthened our marketing for the second quarter and believe that we will see some pent-up demand for seasonal businesses," said Kevin Mansell, chairman, president and CEO said on a conference call with investors. "Our customer is very focused on buying close to need. And so when she doesn't have need, which she really didn't have in March and April, she delays buying."

The chain is also counting on its new exclusive brands from entertainers Jennifer Lopez and Marc Anthony to draw customers. Kohl's says they're the first celebrity couple to simultaneously design collections for one retailer. The lines will launch this fall.

Kohl's net income rose to $211 million, or 73 cents per share, for the period ended April 30 from $199 million, or 64 cents per share, a year earlier.

Earnings met the expectations of analysts surveyed by FactSet.

Revenue rose 3 percent to $4.16 billion. Wall Street forecast revenue of $4.26 billion.

Kohl's shares rose a little more than 1 percent, or 70 cents, to $54.31.

Revenue at stores open at least a year increased 1.3 percent for the quarter, below the 5.4 percent at Macy's Inc. and the 3.8 percent at J.C. Penney Co. The figure is important for retailers because it excludes stores that opened or closed during the year.

Exclusive brands and store labels like Simply Vera Vera Wang and Food Network, which carry a high profit margin and account for about 50 percent of the store's business, fared well.

Online revenue rose 47 percent from last year's quarter to $187 million, about 4.5 percent of its total. Rapid growth is expected to continue: Mansell told investors that Kohl's is on track to have $1 billion in online sales this year.

But Kohl's still lags its competitors online, according to Citi Investment Research analyst Deborah Weinswig in a recent report. Last year, Macy's got 6 percent of its business online, and J.C. Penney 8.6 percent.

Clearly, Kohl's is aiming to increase that. It bought its third online shipping center in Maryland that it plans to have running in time to support the critical holiday season. Kohl's said in March that the Edgewood, Md., center should open in July, creating about 1,200 jobs over the next three years.

As shopping increasingly moves to the Web, Kohl's is building smaller stores. About two-thirds of its new stores in 2011 will be what it considers "small," about 64,000 square feet. That's about three-quarters the size of Kohl's typical stores.

"As more people shop at home and get it delivered to them at home, you might not need as big a footprint," Chief Financial Officer Wes McDonald said.

Mansell said competition remains fierce among rivals to get their share of shoppers' dollars, but it will be more intense this fall as retailers try to push through more price increases.

Mansell told investors that when it pushed through high-single-digit increase on certain goods in men's basics, denim and children's wear, the number of items sold declined in the low single digits, but dollar sales rose in the mid-single digits.

Kohl's, based in Menomonee Falls, Wis., now expects full-year earnings of $4.25 to $4.40 per share, up from $4.05 to $4.25 per share. It anticipates second-quarter earnings of 96 cents to $1.02 per share. Analysts predicted full-year earnings of $4.36 per share and second-quarter earnings of $1 per share.

The retailer, whose exclusive brands include Dana Buchman and Hang Ten, runs 1,097 stores in 49 states.