Kohl's makes progress, but concerns remain
NEW YORK (MarketWatch) --
"We do recognize the fact that the customer is pressured," said Chief Executive Kevin Mansell on a conference call.
"One of the biggest challenges we have is to appeal and make Kohl's value be more apparent to a much larger customer base," he said. "One of the ways we know we have to do that is just offer a better value equation and that means in some cases lower pricing."
He said that and any corresponding gross margin pressure led to the company's forecast reduction for the year even though it expects same-store sales in the third and fourth quarters to improve from the first-half trend.
Kohl's (KSS) shares fell 1.8% in midday trading. The stock has risen 3.7% this year, lagging the 19% increase in the S&P Retail Index.
Kohl's and rival J.C. Penney Co. (JCP) , due to report on Friday, are mid-priced retailers that have been squeezed as shoppers shifted their spending on the low end to chains including T.J. Maxx parent TJX Cos. (TJX) and
To attract shoppers, the company has been increasing inventory after it didn't have enough left in stock to satisfy demand following moves to lower prices on its entry level products. Inventories rose 13% to $3.49 billion at the end of the second quarter.
"We are optimistic" after later June and July sales both outpaced sales the company had all year, Mansell said, adding the inventory level is where it was two years ago. "We are better in stock, and that's particularly so in these back-to-school areas." See July sales may bode well for back to school.
In July, Kohl's posted an unexpected 1.7% increase in same-store sales, after a 1.3% decline year to date through the end of the month.
Still, Mansell said it's too early to get a true read on how the company's back-to-school sales will fare with shoppers spending later and weather being a wild card.
Overhangs
While Mansell may be happy about inventory levels, J.P. Morgan analyst Matthew Boss said he's concerned about the level being "substantially ahead" of the company's third-quarter forecast of same-store sales being flat to up 2%. That's "a question mark," he said.
The analyst is also concerned about the company's cash falling by about half to $600 million, the lowest level since 2008, and its new store productivity being at its lowest level since the fourth quarter of 2010.
"While July was a step in the right direction, we think the rubber hits the road in September/October" when the company faces tough comparisons against the introductions of Jennifer Lopez and Marc Anthony collections a year earlier, Boss said.
He added the inventory level also increases "potential future earnings risk," and the company still didn't answer "structural questions" such as a "maturing store base with reduced remodels" and competition from the likes of T.J. Maxx.
To lift profit in the uncertain macroeconomic environment, Kohl's has lowered the number of its store openings and remodels and is shifting some spending on technology as its online sales have surged 41% so far this year and have doubled in size in the past two years.
It's also added exclusive products such as the Princess Vera Wang apparel line for girls. Taking a cue from Target's successful designer partnerships, the company said in June it's launching a limited-edition apparel line created by designer Narciso Rodriguez, the first of such collections to come.
Second-quarter profit fell 20% to $240 million, or $1 a share, from $299 million, or $1.08 a share, a year earlier.
Sales in the quarter ended July 28 fell 1% to $4.2 billion, while same-store sales decreased 2.7%, the 1,134-store chain said.
The Menomonee Falls, Wis.-based retailer forecast profit in the quarter ending Oct. 27 of 83 cents to 89 cents a share with same-store sales being flat to up 2%. Profit for the year is projected to be $4.50 to $4.65 a share, down from its prior guidance of $4.75.
Gross margin narrowed to 39% from 40.7%. Selling, general and administrative expenses as a percentage of sales fell to 23.2% from 23.3%.
, 
, 
, Copyright ©2013. All rights reserved.