Kohl's sees modest sales gains in back-to-school period

Thu Aug 9, 2012 12:37pm EDT

(Reuters) - Kohl's Corp (KSS.N) forecast business will continue to improve during the back-to-school quarter thanks to a renewed focus on its more affordable products, but Wall Street questioned how quickly the department store chain would win back shoppers.

The retailer also reported a better-than-expected second-quarter profit on Thursday, despite weak sales as the retailer reined in costs.

Kohl's, which competes most directly with Macy's Inc (M.N) and J.C. Penney Co Inc (JCP.N), 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 last quarter when they fell 2.7 percent.

But Kohl's has struggled since shoppers balked when it reduced discounts on less expensive items earlier this year. The chain compounded its problem with overly cautious merchandise inventory management, leading to shortages and frustrating shoppers.

"When our value got a little out of whack, our sales got a little out of whack at the same time," Chief Executive Kevin Mansell said on a conference call.

The retailer said inventory levels have "improved" in time for the back to school period.

But Wall Street analysts questioned whether the retailer has found the right mix of prices heading into the holiday season and 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.

Kohl's attempt to sell pricier items left it ill-equipped to take advantage of the sales hemorrhage at Penney, which has lost shoppers since largely eliminating coupons last winter.

Penney, which reports second-quarter results on Friday, is expected to post a 17.4 percent decline in same-store sales, according to Thomson Reuters. Macy's and Dillard's Inc (DDS.N) each reported a 3 percent rise.

Kohl's sales started to perk up in July as it stocked 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.

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 forecast, 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 shares were down 1.8 percent at $51.10 in midday trading.

(Reporting by Phil Wahba in New York; editing by Maureen Bavdek and Andre Grenon)