Kohl's '09 profit view weak, but Nordstrom raises

By Aarthi Sivaraman and Alexandria Sage

SEATTLE/SAN FRANCISCO (Reuters) - Department store operator Kohl's Corp (KSS.N) gave a weak outlook for the rest of 2009 due to higher costs from new store openings, but upscale retailer Nordstrom Inc (JWN.N) raised its profit view for the year and said recent sales trends were encouraging.

Department stores -- both mid-priced and higher-end -- have suffered in the economic slump as shoppers curtail purchases of unnecessary items. Mounting job losses and tight access to credit have exacerbated that trend, resulting in sales declines for many retailers.

To gain market share in the competitive environment, Kohl's said it would continue to open new stores this year. But an anticipated 3 percent to 4 percent rise in selling, general and administrative costs will limit profits in the third and fourth quarters, the company said.

Kohl's, which posted a higher-than-expected profit in its second quarter even with a 2.2 percent drop in net sales, said last year it would take over 31 Mervyn's stores after that chain's bankruptcy. It is reopening several of those stores later this year, adding to costs in the period.

The company opened 19 stores in its first two quarters and expects to open an additional 37 later this year.

"We are outperforming from an investment perspective," said Chief Executive Kevin Mansell in an interview, saying the higher costs would pay off in the long run as Kohl's stands to gain market share.

"Kohl's reported that it is gaining market share across most merchandise areas and regions and we believe Kohl's has been disproportionately benefiting from the closure of Mervyn's," wrote Citibank analyst Deborah Weinswig in a note.

Department stores have endured some of the steepest sales declines in the past year, as consumers shun their offerings and choose to spend on items like groceries instead.

But Kohl's strategy of offering affordable but trendy items as well as exclusive brands like Dana Buchman and Simply Vera by Vera Wang has enabled it to fare better than some others.

Kohl's expects to earn 40 cents to 44 cents a share in the third quarter, below the 47 cents per share expected, on average, by analysts, according to Reuters Estimates.

For the fourth quarter, it expects to earn 99 cents to $1.06 a share, compared with analysts' $1.13 view.

As Stifel Nicolaus' Richard Jaffe wrote in a note, Kohl's outlook might be later raised: "Historically management has been conservative with its initial guidance and has increased it throughout the quarter as trends remained positive."

In the second quarter, Kohl's posted a net profit of $229 million, or 75 cents per share, down from $236 million, or 77 cents per share, a year earlier. Earnings were a penny above Wall Street estimates of 74 cents per share.

NORDSTROM RAISES VIEW

Nordstrom, which caters to a more well-heeled clientele, posted a second-quarter net profit of $105 million, or 48 cents per share, compared with $143 million, or 65 cents per share, a year earlier -- matching Wall Street's average view.