Kohl's strong holiday sales fuel big earnings beat

Key Points
  • Kohl's earnings and revenue for the fourth quarter top analysts' expectations.
  • Same-store sales for the holiday period rise more than 6 percent.
  • Kohl's says it trimmed excess inventory by 7 percent in 2017, which boosted profit margins.
People approaching Kohl's department store in Mount Kisco, New York.
Scott Mlyn | CNBC

Kohl's on Thursday reported fourth-quarter earnings and revenue that beat analysts' expectations, fueled by strong sales growth and tighter controls over inventory.

The company said it trimmed excess inventory by 7 percent in 2017, which boosted profit margins and created an overall cleaner shopping experience in stores. It also revealed it would tap Aldi as its first partner to sublet space in downsized stores. The company has been right-sizing its real estate over time and pursuing potential tenants.

Kohl's shares rose more than 4 percent in premarket trading following the earnings announcement.

Here's what the company reported compared with what analysts were expecting, based on a survey by Thomson Reuters:

  • Earnings per share: $1.99, adjusted, vs. $1.77 estimated.
  • Revenue: $6.78 billion vs. $6.74 billion.
  • Same-store sales: growth of 6.3 percent vs. 5.7 percent.

"We improved our merchandise margins through strong inventory management and improved promotional and permanent markdowns," CEO Kevin Mansell said in a statement. "All areas [of Kohl's] effectively managed their expenses."

The company's net income rose to $468 million, or $2.81 a share, compared with $252 million, or $1.44 per share, a year ago. Kohl's said new tax legislation boosted its profits by $136 million.

Excluding one-time items, Kohl's earned $1.99 a share, 22 cents ahead of analysts' expectations.

Revenue for the fourth quarter climbed 9.2 percent to $6.78 billion, while analysts were calling for sales of $6.74 billion.

Same-store sales — a key metric for retailers — were up more than 6 percent, again surpassing expectations. During the same period a year earlier, same-store sales were down 2.2 percent.

Looking to fiscal 2018, Kohl's is calling for same-store sales to be flat to up 2 percent, while total revenue is expected be in the range of down 1 percent to up 1 percent. Earnings for the year should fall within a range of $4.95 to $5.45 a share, Kohl's said. Analysts had been calling for full-year earnings of roughly $4.72 a share.

Moving forward, the Wisconsin-based retailer aims to drive more shoppers to its stores via a partnership with Amazon that was kicked off last year.

Unlike other department stores, Kohl's has benefited from having its real estate situated apart from malls, where foot traffic is declining across many parts of the country. Recently, Kohl's has started to analyze its store fleet to dedicate portions of space, in certain locations, to other uses such as grocery and convenience stores. The company is also testing a smaller store format of roughly 35,000 square feet.

Mansell will step down as CEO in May. He will be succeeded by Michelle Gass, who has been leading the retailer's deal with Amazon and other merchandising initiatives.

Key areas of investing for Kohl's include its mobile app, which allows shoppers to buy online and pick up purchases in stores, as well as its Kohl's Cash rewards program and its private-label apparel lines including Sonoma and Tek Gear.

"This kind of thinking ... shows that Kohl's understands the need to give customers reasons to visit stores and is not afraid to experiment to achieve this," GlobalData Retail Managing Director Neil Saunders said.

Kohl's shares have risen about 12 percent so far this year. The stock is up more than 45 percent from a year ago.