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NEW YORK — Department store operator Kohl's Corp. on Thursday said better-than-expected sales of home products and accessories such as handbags helped it beat Wall Street predictions for its second quarter.
But its quarterly and full-year outlooks disappointed investors, who pushed down its shares.
Department store operators have been among the companies hit hardest by the recession, as consumers limit spending and trade down to discounters. But Kohl's has carved out a niche where it offers lower-price exclusive brands such as Simply Vera by Vera Wang and Candie's.
"All of our primary research and our own response rates on events have continued to indicate the consumer is very focused on stretching their dollar, making their budget go further, and seeking optimum value," President and CEO Kevin Mansell said in a conference call with investors.
Mansell told The Associated Press in an interview that for the back-to-school season he is seeing a continuation of spring's consumer behavior: People are shopping less and spending very carefully. In fact, he believes frugality is the new reality and is preparing for that behavior during the holiday shopping season.
"We are assuming that the last holiday season is the new normal," he said. If things go better this year, Kohl's can quickly adjust to increasing demand, he added.
The Menomonee Falls, Wis.-based retailer earned $229 million, or 75 cents per share, for the period ended Aug. 1. That's down 3 percent from $236 million, or 77 cents per share, a year earlier, topping the 74 cents-per-share profit that analysts polled by Thomson Reuters expected.
Sales rose 2 percent to $3.81 billion from $3.73 billion to surpass Wall Street's estimate of $3.79 billion.
Sales in stores open at least one year, or same-store sales, showed some weakness, falling 2.3 percent during the quarter. But same-store sales of accessories, home goods and footwear were positive, the company said. Mansell said the demise of Linens 'N Things last year might be helping sales in its home category.
Among accessories — the strongest category — silver, fashion jewelry and handbags stood out. In the home category, small electric devices, bedding and food preparation products were the best sellers.
"There has been a pretty seismic shift in the way consumers are looking at handbags," Mansell said. "They recognize they can get an incredible amount of style and quality for a much better value than they might have been willing to spend a year ago."
Kohl's said inventory rose 0.2 percent in total.
"Kohl's conservative inventory positioning, along with contribution from private brands, continues to result in improved merchandise margins," said Thomas Weisel Partners analyst Liz Dunn, who rates the company "neutral."
The company expects same-store sales to fall between 3 percent and 5 percent in its third quarter.
Kohl's lifted its full-year profit forecast to a range of $2.59 to $2.70 per share from $2.19 to $2.42 per share. Analysts expect net income of $2.78 per share for the year.
It anticipates earning 40 cents to 44 cents per share in the third quarter, with sales down 1 percent to up 1 percent. In the fourth quarter, Kohl's predicts earnings of 99 cents to $1.06 per share on roughly flat sales.
Analysts predict third-quarter net income of 47 cents per share on sales of $3.85 billion and fourth-quarter earnings of $1.14 per share on revenue of $5.4 billion.
Chief Financial Officer Wes McDonald said in a conference call the company is admittedly cautious with guidance.
"I think we have shown the ability to chase business better than what we have projected if it materializes, but we are going to be conservative," he said. "We will have the inventory there to do better if the traffic is there."
Kohl's plans to open 37 stores later this year for a total of 56 new stores in fiscal 2009. It had 1,022 at the end of the second quarter.
Shares fell 85 cents to $51.42 in midday trading. The stock has traded between $24.28 and $56 during the past 52 weeks.
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AP Retail Writers Michelle Chapman and Anne D'Innocenzio contributed to this report from New York.
