Kohl’s takes its lumps in third quarter

KohlsBy Ryan Sachetta

Shares of Kohl’s, Corp. dipped Thursday after the retailer, which is looking to reenergize its stalled business model, released disappointing third quarter earnings.

For the quarter ended November 1, Kohl’s had net income of $142 million, or 70 cents per diluted share, compared with $177 million, or 81 cents per diluted share, a year earlier.

The Menomonee Falls, Wisconsin-based company’s per-share profit missed the 74 cents analysts surveyed by Yahoo Finance had been anticipating.

Sales declined to $4.37 billion from $4.44 billion a year earlier, falling slightly short of the $4.41 billion analysts had forecast.

Comparable store sales – those at stores open at least 12 months – dropped 1.8 percent in the third quarter, worse than the 1.6 percent decline from a year earlier.  Just last month, the company had forecast ”comp-store” sales would drop by a more modest 1.4 percent.

“Our guidance at that time assumed we would hit our internal plans for the final week of the month,” said CEO Kevin Mansell during Thursday’s conference call. “Unfortunately, reported sales remain challenging and we did not achieve those plans.”

Investors reacted to Thursday’s downbeat news with skepticism: In mid-day New York Stock Exchange trading, Kohl’s shares were down $1.71, or 3 percent, to trade at $56.20.

Kohl’s shares have risen by a paltry 3.9 percent in the last 12 months, significantly underperforming the S&P 500’s 13.6 percent rise over the same period.

Kohl’s latest quarter “underlines (the) volatile consumer environment” facing retailers, Morningstar analyst Paul Swinand said in an online note.

At Stifel, Nicolaus & Co., analyst Richard E. Jaffe noted that promotional costs are squeezing profit margins at Kohl’s, and added that the company needs “a better and more relevant merchandise assortment.” Still, he reiterated his “buy” rating for the company.

Once a high-flying retailer that grabbed a solid share of the middle market, Kohl’s is now widely perceived by investors to have lost its way.

In response to such concerns, Mansell unveiled the company’s “Greatness Agenda” earlier this year with hopes of refreshing the company’s image. A portion of the agenda includes focusing on more national brands such as Adidas, Levi’s, and Nike, while offering such private collections including Jennifer Lopez and Simply Vera by Vera Wang.

“That really simple formula we had of just –‘hey, great brands at great prices and give it to people in convenient settings,’ just became a little less compelling,” Mansell said at the company’s investor conference last month. “It became a little less relevant in a different environment and a different era.”

Like other retailers, Kohl’s is trying to maximize its returns from the upcoming holiday shopping season: Kohl’s announced last month that it plans on opening Thanksgiving Day at 6 p.m. to attract Black Friday shoppers to its more than 1,100 locations. The move coincides with the company’s aggressive holiday promotional push that includes trivia questions posed via Twitter with winners receiving gift cards.