Kohl's beats Wall St view, Nordstrom cuts forecast

NEW YORK Fri Aug 15, 2008 4:12am EDT

A Nordstrom store is seen at a mall in a Denver suburb, May 16, 2008. REUTERS/Rick Wilking

A Nordstrom store is seen at a mall in a Denver suburb, May 16, 2008.

Credit: Reuters/Rick Wilking

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NEW YORK (Reuters) - Kohl's Corp (KSS.N), a mid-priced apparel and home goods retailer, reported a quarterly profit on Thursday that beat Wall Street's expectations and raised its full-year forecast, saying tight expense controls would help it weather a tough U.S. economy.

Quarterly results at Nordstrom Inc (JWN.N) also exceeded expectations, but the upscale department store chain lowered its full-year outlook as its margins come under "continuous" pressure and rivals ratchet up promotional deals.

U.S. retailers have been feeling the pinch of the economy as consumers who are spending more on fuel and food have less money for items like clothing. A credit crunch and weakening job market are also hurting shoppers' spending.

But the performance of retail chains has varied as some are better able to control expenses and inventory levels, while others say consumers have yet to pull back from their wares.

"It is extremely important to maintain our existing store base in a tough environment with significant competition for customers whose disposable income is shrinking," Kohl's Chief Executive Larry Montgomery said on a call with analysts.

Kohl's profit fell to $236.0 million, or 77 cents per share, in its fiscal second quarter, ended August 2, from $269.2 million, or 83 cents per share, a year earlier.

That was ahead of the average analyst forecast of 73 cents per share, according to Reuters Estimates, helped by sales of its private brands and lower inventory levels.

"We believe that KSS's inventory management initiatives ... and increased private and exclusive brand penetration helped to mitigate the margin pressures exerted by the company's lackluster sales," Citi retail analyst Deborah Weinswig wrote in a note.

Analysts said Kohl's lower inventory levels gives it a competitive advantage going into the holiday season.

"They're going to be able to show real newness and freshness ... and that's what's selling," said Deutsche Bank retail analyst William Dreher, who expects Kohl's to exceed its fiscal year outlook since it wouldn't be stuck with excess product.

Kohl's raised its earnings forecast for the full year to a range of $3.02 to $3.18 per share from $2.95 to $3.15 per share.

Shares in Kohl's rose 2.3 percent in extended trading from their close of $48.27 earlier on Thursday. Nordstrom shares fell 2 percent from a close of $30.22.

NORDSTROM SEES NO TRADE-DOWN

Nordstrom President Blake Nordstrom said the company had pared its full-year forecast because of pressure on its margins and a tough business for women's apparel.

But while customers may be spending less, the retail chain has not seen signs they are looking for cheaper versions of its brands when they do shop.

"The competitive environment is highly promotional and customers are more cautious today. However, we see no evidence that they are trading down," Nordstrom said on a conference call with analysts.

Nordstrom's reported a net profit of $143 million, or 65 cents a share, for its fiscal second quarter, ended August 2, compared with $180 million, or 71 cents a share, a year earlier. Analysts had expected earnings of 64 cents per share.

For the third quarter, Seattle-based Nordstrom expects earnings of 49 cents to 54 cents, assuming a drop in same-store sales of 4 percent to 6 percent.

Nordstrom cut its view for fiscal 2008 earnings to a range of $2.55 to $2.65 from $2.65 to $2.80. Analysts had forecast earnings of 56 cents per share for the third quarter and $2.68 for the full year.

(Additional reporting by Karen Jacobs in Atlanta; Editing by Steve Orlofsky)

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