UPDATE 2-Kohl's expects rising sales in back-to-school quarter

Thu Aug 9, 2012 8:32am EDT

* Second-qtr EPS $1 vs Street View 96 cts

* Sees 3rd-qtr same-store sales flat to up 2 pct

* Shares lower in premarket

Aug 9 (Reuters) - Kohl's Corp reported a better-than-expected second-quarter profit on Thursday despite weak sales as the retailer reined in its costs and forecast business would improve during the back-to-school quarter.

Kohl's, which competes most directly with Macy's Inc and J.C. Penney Co Inc, forecast sales at stores open at least year, or same-store sales, would be flat to up 2 percent in the current quarter, an improvement over its weak first half.

As previously reported, the retailer's total sales for the quarter fell 1 percent while same-store sales were down 2.7 percent, well below what the company forecast three months ago.

Morningstar analyst Paul Swinand said Kohl's same-store forecast, while an improvement, was still modest given that the company said its inventory levels have improved.

Kohl's paid a price for its overly cautious merchandise inventory management earlier this year, which led to shortages for popular items, costing it sales and leaving it unable to take advantage of the sales hemorrhage at Penney, which has lost shoppers since largely eliminating coupons and special events last winter.

Kohl's also struggled earlier this year when shoppers balked at its reduced discounts on its less expensive items.

Wall Street saw Kohl's same-store sales forecast as tepid. "We believe Kohl's suffers from not having a strong assortment of brands consumers want, which, in our view, has created a traffic issue," Nomura analyst Paul Lejuez said in a research note.

But in July, Kohl's sales started to perk up as it got sufficient merchandise for the start of back-to-school shopping, which after the holiday season is the most important time of year for Kohl's and its peers.

Chief Executive Kevin Mansell said the retailer had met its goal of having better inventory levels for the autumn season.

Kohl's, which operates 1,134 stores, expects third-quarter earnings of 83 cents to 89 cents per share, compared with the 87 cents Wall Street analysts had been expecting, according to Thomson Reuters I/B/E/S.

Kohl's posted a second-quarter profit of $240 million, or $1 per share, down from $299 million, or $1.08 per share, a year earlier. That beat analyst forecasts by 4 cents.

Its gross margin fell 1.7 points to 39 percent of sales, a smaller than expected drop.

Its shares slipped 6 cents to $52 in premarket trading.