UPDATE 3-Kohl's forecasts weak profit, to spend more on advertising, IT

Thu Feb 28, 2013 1:24pm EST

* Q4 earnings $1.66/shr vs Street view $1.63

* Sees FY same-store sales flat to up 2 pct

* Sees FY earnings $4.15-$4.45/shr vs view $4.56

* Shares fall 4 pct

By Phil Wahba

Feb 28 (Reuters) - Department store chain Kohl's Corp said it aims to "re-energize" its brand in 2013 through increased advertising and investments in inventory management after markdowns used to move merchandize in the critical holiday season hurt profit.

Shares of the company, which forecast full-year profit below Wall Street expectations, were marginally down at $46.44 in afternoon trading on the New York Stock Exchange. They fell more than 4 percent earlier in the day.

Kohl's, which caters to price-sensitive middle-class shoppers, said it expects same-store sales to be flat to up 2 percent this year, following a modest 0.3 percent gain last year.

However, the forecast was below that of Macy's Inc's 3.5 percent and suggests the company does not expect to benefit much from the steep sales decline of its most direct rival, J.C. Penney Co Inc.

On Wednesday, Penney reported a 31.7 percent same-store sales decline for the holiday quarter as customers turned away from its plan to offer "everyday low prices" instead of its popular sales events.

"Kohl's has a cautious consumer and has a lower income demographic than Macy's," Edward Jones analyst Brian Yarbrough told Reuters.

Unhappy Penney shoppers have tended to go to a Macy's or Sears within a mall, rather than drive to a standalone Kohl's store, Yarbrough said.

Kohl's Chief Executive Kevin Mansell said on a post-earnings call that the company will focus advertising on its most loyal and highest-spending customers -- mothers particularly in the age group of 35 to 54.

"On the marketing front our objective is to re-energize the Kohl's brand to drive more engagement and ultimately traffic," Mansell said.

"We will also shift our marketing towards channels that we believe will maximize our marketing dollars. This includes significantly increased TV and digital exposure."

INVENTORY ISSUES

Kohl's said net income fell to $378 million, or $1.66 per share in the fourth quarter ended Feb. 2, from $455 million, or $1.82 per share, a year earlier. The latest EPS result was 3 cents better than analysts' targets, according to Thomson Reuters I/B/E/S.

Kohl's gross profit margin fell 2.9 points to 36.2 percent of sales, largely because of price slashing in December to lure hesitant shoppers holding out for deals, then again in January to clear shelves to make room for spring merchandise.

"Sales for the fourth quarter developed very late and as a result, came at a cost to profitability," Kohl's Mansell said in a statement, noting that cost controls had limited the damage.

Kohl's struggled with finding the right level of inventory last year. Some months it kept inventory too lean and ran out of merchandise, losing out on some business, while other months it had too much and ended up slashing prices.

Comparable sales for the quarter that included the holiday season were up 1.9 percent. At Macy's, they rose 3.9 percent, and at Dillard's Inc, they gained 3 percent.

"From a business standpoint, we struggled to find the right delivery of value in our prices, the appropriate level of inventory in each of our key businesses and to evolve our marketing message," Mansell said on the call.

He said the company will invest in IT infrastructure in 2013 to help it with price and inventory management, with a focus on promotional and permanent markdown management.

Kohl's expects a full-year profit of between $4.15 and $4.45 per share, while Wall Street projected $4.56 per share, according to Thomson Reuters I/B/E/S.