Kohl's Corp. reported that profit rose 17 percent in the second quarter despite the uncertain economy, in large part due to the success of its store-label brands such as Simply Vera Vera Wang and Food Network.
The company also raised its guidance for the full year, counting on one of its biggest brand launches in its history with celebrities Jennifer Lopez and Marc Anthony to drive shoppers into its stores.
"We weren't happy with our sales performance in the second quarter, but we were very pleased to significantly exceed the high end of our earnings goals," said CEO Kevin Mansell told investors.
The department store chain, based in Menomonee Falls, Wis., said its net income rose to $303 million, or $1.09 per share, in the three months ended July 30. That compares with $260 million, or 84 cents per share, in the year-ago period. Analysts had been expecting earnings of $1.05 a share.
Revenue was up almost 4 percent to $4.25 billion, but was below the $4.32 billion analysts were expecting. Revenue at stores opened at least a year, a key measure of a retailer's health, rose 1.6 percent.
Shares rose $3.64, or more than 8 percent, to $47.93 in early afternoon trading on the news.
Like many department stores, Kohl's has benefited from its strategy of beefing up its assortment of store-label products to differentiate itself from the competition. That translates into fatter profit margins because merchants can save money by sourcing and designing their own products and therefore eliminate the extra costs associated with buying from branded suppliers.
During the second quarter, Kohl's gross margin rate rose to 40.7 percent from 40.3 percent in the year-ago period. Mansell said the rate rose because of "our increased penetration of private and exclusive brands and disciplined inventory management."
Next month, Kohl's plans to roll out its exclusive brands from entertainers Lopez and Anthony to all stores; it will also be available online. Mansell said both brands "will resonate strongly with our existing customers and drive new customers into our stores."
Mansell declined to comment on whether spending has been affected since late Friday when the Standard & Poor's downgrade of U.S. debt, which led to turmoil in the stock markets and increased fears of another U.S. recession. But Mansell said the company is stepping up its marketing after a weak July, which was hurt by limited clearance racks.
"There is no question that the consumer needs to be motivated more in order to buy today," he said.
Given increasing fears about a double dip recession, Mansell told The Associated Press during a phone interview Thursday that the chain is studying contingency plans such as increasing discounting or reassessing holiday hiring.
"We are prepared for a deterioration because anyone who is not is being foolish," he said.
The increasing worries about the economy come just as shoppers are seeing higher prices at the mall. Mansell noted that Kohl's is increasing prices by anywhere from 8 to 10 percent this fall The bulk of price hikes will start in August, though so far the department store is noticing that shoppers will be willing to spend more on an item if it's something they really want.
For the third quarter, Kohl's said it expects total sales to increase between 4 percent and 6 percent. It projects that revenue at stores opened at least a year will rise 2 percent to 4 percent.
Assuming share repurchases of about $500 million during the quarter, Kohl's is estimating earnings per share of 76 cents to 82 cents for the third quarter.
Kohl's increased its full-year guidance to $4.45 to $4.60 per share from an earlier range of $4.25 to $4.40 per share. Analysts are expecting profit of $4.39 per share for the year.