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Feb 25, 2010
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Kohl's profit rises as exclusive lines sell well

By
Reuters
Published
Feb 25, 2010

NEW YORK, Feb 25 (Reuters) - Mid-tier department store operator Kohl's Corp (KSS.N) reported a higher-than-expected fourth-quarter profit and forecast continued growth from its lucrative exclusive brands, sending its shares up 4.9 percent.


The company expects earnings for this fiscal year that could fall short of Wall Street estimates because of weak consumer sentiment, but investors shrugged that off based on the company's pattern of understated forecasts.

"We owe it to our investors not to get ahead of the consumer," Chief Executive Kevin Mansell said on a call with analysts, referring to the economy's potential impact on spending this year.

"Consumers continue to be financially constrained ... as a result, we are planning conservatively in our sales expectations, inventory levels and expenses," he said.

The modest forecasts were an admission that in the absence of a spending rebound, the company may be running out of ways to increase profits, analysts said.

"They're just acknowledging that even if they are doing well, it's tough for the consumer and because of that, (2010) could be a year of intensified competition," Edward Jones analyst Matt Arnold said.

Kohl's net profit rose 28.3 percent to $431 million, or $1.40 a share, in the fourth quarter that ended Jan. 30, from $336 million, or $1.10 a share, a year earlier.

Analysts' average estimate was $1.37 cents per share, according to Thomson Reuters I/B/E/S.

Sales rose 8.5 percent to $5.68 billion.

Leaner inventories helped lift its gross margins 1.6 percentage points to 36.4 percent.

Sales at stores open at least a year were up 4.5 percent. Kohl's expects comparable sales to rise between 1 percent and 3 percent in the current quarter and the full year.

A FOCUS ON EXCLUSIVES

Kohl's has performed better than rivals including Macy's (M.N) and J.C. Penney (JCP.N) by being quick to beef up its exclusive lines, which are popular with customers, giving the store a higher profit per item sold.

Kohl's said those lines, which include Simply Vera Wang, Dana Buchman and Candie's, gained 2 percentage points to reach 42.7 percent of sales during the quarter.

It is "reasonable" to imagine sales from exclusive lines eventually reaching the 50 percent level, Mansell told Reuters in an interview.

"If we can identify world class brands that we could make exclusive to Kohl's, and give a customer a reason to shop Kohl's versus the Gap, or J.C. Penney or Target or Macy's, then we're going to pursue that goal," Mansell said.

Kohl's forecast earnings of 48 cents to 52 cents per share for the first quarter and between $3.40 and $3.63 for the full year. Analysts on average are expecting 54 cents for the quarter and $3.63 for the full year.

"The forecast is prudent, but they do this every quarter and then beat their guidance," said Walter Stackow, an analyst with Manning & Napier, which owns Kohl's shares. "I don't see a slowdown in the momentum of what's helping its growth."

The company expects to open some 30 stores and remodel 85 during the year. It operates about 1,060 U.S. stores.

Despite cheaper commercial real estate, Kohl's is not rushing in to expand its store count.

"The country is clearly overstored in both specialty apparel and department stores," Mansell said. "Weak performers are going to have to close stores. If and when that happens, the best of those locations, we're going to be looking at."

One of the new stores is opening in Rego Park in the New York City borough of Queens next week, and Mansell said the company is interested in Manhattan. He did not elaborate.

Kohl's shares rose 4.8 percent, or $2.49, to $54.08 in afternoon trading on the New York Stock Exchange. (Reporting by Phil Wahba, editing by Dave Zimmerman, Maureen Bavdek)

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