Kohl's profit grows, helped by traffic gains and tight inventories, but sales are still shrinking

Key Points
  • Kohl's reported earnings per share of 39 cents for the quarter on revenue of $3.84 billion.
  • Analysts were expecting the department store operator to post earnings of 29 cents a share on sales of $3.90 billion, according to Thomson Reuters consensus estimates.
  • Kohl's same-store sales declined 2.7 percent, better than the 3.9 percent a year earlier.
A shopper at a Kohl's store in Jersey City, NJ.
Nicole O'Hara | CNBC

Kohl's efforts to drive more shoppers back into its stores and keep inventory levels low are finally showing up in the retailer's bottom line, pushing it past Wall Street estimates.

However, same-store sales continued to decline, shrinking for five straight quarters.

The department store operator on Thursday posted a 14 percent jump in adjusted quarterly profit for the first quarter, fueled by higher traffic in stores during March and April.

Kohl's total net income rose to $66 million, or 39 cents per share, in the first quarter ended April 29, from $17 million, or 9 cents per share, a year earlier. Net sales fell 3.2 percent to $3.84 billion.

The Street was expecting the retailer to post earnings of 29 cents a share on sales of $3.90 billion, according to Thomson Reuters analysts' consensus estimates.

Shares of the stock closed down 7 percent Thursday.

The retailer's same-store sales fell 2.7 percent for the quarter, compared with a larger decline of 3.9 percent during the period a year ago. However, analysts were anticipating an even narrower decline of 1.2 percent, according to FactSet.

"Continued strong inventory management led to a major improvement in gross margin, and our teams managed expenses exceptionally well," CEO Kevin Mansell said in a statement. "We are encouraged by the significant improvement in sales and traffic for the March and April period, after a weak February start to the first quarter."

Kohl's managed to grow its gross margin for the quarter to 36.4 percent from 35.5 percent during the same period one year ago.

Merchandise inventories also improved, falling 2.3 percent for the period.

"Kohl's entered the spring period in a much better inventory position [than] it has for some time," GlobalData Retail analyst Hakon Helgesen said in a statement. "There was far less surplus fall and winter stock, which helped the margin rate as less discounting was required to shift old merchandise."

"The better bottom line performance is mostly a function of more careful inventory management and a focus on cost reduction," Helgesen wrote.

With many retailers shuttering stores, Mansell has said he is looking for opportunities to trade in Kohl's big-box locations for smaller shops.

The company closed 19 stores last year, which ate into Kohl's sales and weighed on its e-commerce results. Kohl's ended the first quarter with 1,154 stores, compared with 1,167 locations a year ago.

Mansell's strategy is already playing out in Boston, for example, where Kohl's recently took a few stores that measured between 85,000 and 100,000 square feet, shrinking them down closer to 70,000 square feet and using the excess space to bring in another tenant.

As of Thursday's close, shares of Kohl's are down about 4 percent over the past 12 months but are down nearly 25 percent for the year-to-date period, as many retail stocks have struggled early on in 2017.