UPDATE 3-Kohl's holiday profit forecast misses mark

Thu Nov 8, 2012 9:26am EST

* Third-qtr EPS 91 cts vs Street View 88 cts

* Sees Q4 same-store sales up 3-4 pct

* Sees Q4 EPS $2-$2.08 vs Street View $2.16

* Kohl's shares down 2.6 percent premarket

By Phil Wahba

Nov 8 (Reuters) - Kohl's Corp on Thursday said it expects sales to rise this holiday quarter but gave a profit forecast that missed Wall Street's expectations and raised concerns the department store chain may have to offer discounts to draw in customers.

The retailer, which operates 1,146 stores, reported a stronger-than-expected third-quarter profit, as business perked up later in the period.

Kohl's, which competes most directly with Macy's Inc and J.C. Penney Co Inc for middle-class shoppers, expects sales at stores open at least year, or same-store sales, to be up 3 percent to 4 percent in the quarter that includes the Christmas shopping period.

That would mark a major improvement over last year's holiday period, when same-store sales slumped 2.1 percent, and would be in line with higher-end Macy's forecast for a 4.2 percent jump.

But its profit forecast of $2.00 to $2.08 per share for the holiday quarter - which accounts for about 40 percent of its annual net income - missed the $2.16 Wall Street analysts had been expecting, according to Thomson Reuters I/B/E/S.

"That tells me they believe the environment is going to be a little more promotional," Brian Yarbrough, consumer discretionary analyst for Edward Jones said, referring to the prospect of having to offer discounts and give up some profit margin to compete with rivals.

Its shares were down 2.6 percent at $52.90 in premarket trading.

Macy's also gave a disappointing holiday quarter profit forecast this week.

Kohl's earlier this year frequently reported monthly sales numbers that disappointed Wall Street, which it blamed on its efforts to keep inventory lean to avoid having to sell unsold merchandise at deep discounts.

As a result, some popular items sold out. But many of its fashions aimed at young adults failed to impress shoppers, also hurting sales.

Kohl's chief executive said in a statement that the retailer had made "investments" in inventory to offer a broader and more plentiful array of goods for the holiday season.

In October, with more merchandise on hand, Kohl's reported sales well above analyst projections, suggesting the retailer was putting that problem behind it.

Kohl's posted a third-quarter profit of $215 million, or 91 cents per share, up slightly from $211 million, or 80 cents per share, a year ago. That was 3 cents better than analyst projections.

The department store chain has been able to boost its earnings per share by buying back shares, and said its board raised its share buy-back program by $300 million to $3.5 billion.

Gross margin, which reflects the profitability of goods sold, fell half a percentage point to 38.1 percent.

As previously reported, same-store sales rose 1.1 percent in the third quarter, while overall sales rose 2.6 percent to $4.49 billion.

Separately, Dillard's Inc, a higher-end department store chain, reported a 5 percent rise in same-store sales, above the 3 percent increase analysts were expecting. Its gross margin for its retail operations edged up 0.4 points to 37.1 percent, reflecting its ability to resist having to discount.