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MILWAUKEE — The cutback in consumer spending pushed Kohl's Corp.'s earnings down 11 percent in its fiscal first quarter. But the department store chain's results beat expectations and it said it expects to keep gaining market share from competitors.
The Menomonee Falls, Wis.-based retailer has been posting same-store sales declines like many other retailers, but those drops are less than what competitors like Macy's Inc. and J.C. Penney Co. saw, which signals Kohl's is gaining market share.
Traffic drops are lessening, too. President and Chief Executive Kevin Mansell told The Associated Press in an interview Thursday that traffic to Kohl's stores 2 percent in the quarter, less than the quarterly drops of 5 percent to 8 percent the company felt all last year.
"That means you're getting her to come into your store," Mansell said of the company's typical customer. "You're still challenged to get her to spend when she's there. But you're getting her to come in."
The company said it is bringing in consumers with in-house and exclusive brands, both of which have higher margins than outside brands. Mansell said Kohl's will keep pushing its value message, including have special buys and unique products, to get consumers to shop. Marketing spending will remain in line with store sales for the year.
In the three-month period that ended May 2, Kohl's earned $137 million, or 45 cents per share. That is down from $153 million, or 49 cents per share, a year earlier. Sales edged up 0.4 percent to $3.64 billion. Same-store sales, a measure of business at stores open for at least a year, fell 4.2 percent.
Analysts surveyed by Thomson Reuters expected profit of 43 cents per share on revenue of $3.62 billion.
Shares lost 71 cents to end at $41.24 Thursday.
Standard & Poor's analyst Jason Asaeda said Kohl's is managing its inventory well and not having to take discounts to move it. The company is gaining market share "on (the) strength of its value pricing strategy, ongoing efforts to inject newness into its assortments and expansion," he wrote to clients Thursday.
Asaeda raised his target price for Kohl's shares by $7 to $45 based on the company's performance relative to its peers.
Department stores are facing big challenges during the recession as shoppers keep spending low and seek bargains at discounters. Wal-Mart Stores Inc., the world's largest retailer, reported Thursday that its first-quarter profit was flat as the stronger dollar hurt revenue from its international operations.
Mansell said women's clothing has been hurting since that's something most shoppers — the bulk of them women — look to cut from their budgets. Shoppers who spend more are looking for value, he said, pointing to the success of Kohl's Dana Buchman line, which launched in February. The company's exclusive line of Dana Buchman clothing, accessories and shoes for women, while less expensive than the designer's wares at other stores, is at the highest price point at Kohl's.
"It's really more about value for our customer" he said. "It's less about the price and more about what they get for the price."
So far, the line has exceeded expectations and could expand into home and beauty products and fragrances.
Analysts say the company could benefit as former competitors such as Mervyns LLC vanish. Executives told analysts that buying some former Mervyns stores put Kohl's in a better position to compete in California, a Mervyns stronghold.
Mansell said Kohl's boosted its presence in California by 40 percent with its acquisition of 35 stores there.
For the full year, Kohl's raised its earnings forecast to a range of $2.19 to $2.42 per share, up from $2 to $2.30 per share. Analysts are predicting net income of $2.52 per share.
Kohl's also said it expects to earn 56 cents to 64 cents per share in the second quarter. Analysts expect profit of 61 cents per share. The company expects same-store sales to be down between 5 percent and 8 percent in the second quarter.
Kohl's operates 1,022 stores in 49 states. It opened 19 stores in the first quarter and plans to open an additional 37 stores later this year.
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AP Retail Writer Michelle Chapman in New York contributed to this report.
