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Kohl's Earnings Top Forecast, but Weather Hurts Sales

CNBC With Wires
Thursday, 16 May 2013 | 2:16 PM ET
Shoppers enter a Kohl's Corp. store in Peoria, Illinois, U.S.,
Daniel Acker | Bloomberg | Getty Images
Shoppers enter a Kohl's Corp. store in Peoria, Illinois, U.S.,

Kohl's said on Thursday it expects sales to rebound in the current quarter after bad weather in early spring hurt business at the department store chain.

The retailer also reported a better-than-expected first-quarter profit, helped by signs that it is finally beating a problem that deviled it last year—not ordering the styles and stock that shoppers wanted.

Kohl's shares were up 4.7 percent at $52.00 at midday. (Click here to track the company's shares.)

Last year, the company often frustrated Wall Street by ordering too much inventory, with much of it ending up being heavily discounted, or ordering too little, hurting sales.

Despite a 1.9 percent drop in sales at stores open at least a year in the first quarter, gross profit margin on merchandise rose 0.5 percentage point to 36.4 percent of sales.

"This suggests that sales in the quarter were not so promotion-driven and that they're getting a better handle on their inventory planning," Edward Jones analyst Brian Yarbrough told Reuters.

In the last year, Kohl's has brought in many new merchants, the people who decide what the department store will sell, and new operations planners. Yarbrough said the changes are starting to pay off.

On a call with Wall Street investors, Chief Executive Kevin Mansell said there was "a lot of pent-up demand" for spring merchandise that would help sales now that weather is warming up in the northern United States. Kohl's expects same-store sales to increase as much as 2 percent in the current quarter, which includes the start of the back-to-school season.

"After a slow start, sales improved considerably in April as the weather finally improved in our most weather-sensitive regions," Mansell said. "Despite the lower than expected sales, we outperformed our earnings guidance as gross margin results and expense management were better than expected. Our inventory levels are consistent with our expectations."

In the first quarter, comparable sales were down 8 percent for seasonal merchandise like T-shirts, shorts and sandals, Mansell said.

On Wednesday, Macy's Chief Financial Officer Karen Hoguet also said warmer temperatures in May would likely help it make up some lost business.

Kohl's, which caters to price-sensitive middle-class shoppers, posted net income of $147 million, or 66 cents per share, for the fiscal first quarter that ended May 4, beating analysts' average forecast by 10 cents. A year earlier, the company earned $154 million, or 63 cents per share.

Sales fell 1 percent to $4.20 billion, slightly below the average forecast of $4.26 billion.

E-commerce sales jumped 31 percent as Kohl's continued to invest in technology and move toward being able to fill online orders from its stores.

For the current quarter, the company expects to earn $1.00 to $1.08 per share and forecast total sales growth of 1 to 3 percent. Analysts polled by Thomson Reuters had been expecting a per-share profit of $1.05 and revenue growth of 3 percent.

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