August 12, 2010 / 11:37 AM / 7 years ago

Kohl's, Nordstrom cautious on 2010, shares fall

NEW YORK/SAN FRANCISCO (Reuters) - Department stores Kohl's Corp (KSS.N) and Nordstrom Inc (JWN.N) disappointed investors with conservative profit outlooks, while Kohl's said the cost to adapt to new consumer credit card laws would bite into profit.

Kohl's, which caters to a cost-conscious customer, lowered its 2010 profit view, while Nordstrom stood by a previously-issued earnings forecast but did not raise it. The outlooks signaled both companies' uncertainty over consumer spending in the highly-competitive retail apparel market.

Although Kohl's same-store sales were up 5.9 percent in the first half of the year, it forecast a pace of 2 percent to 4 percent sales growth in the second half. Its shares closed down 2.7 percent on Thursday.

"The landscape hasn't changed -- and you can make the case that perhaps it has worsened," Kohl's Chief Executive Kevin Mansell told Reuters, explaining Kohl's cautious sales view. "Better that we be conservative and then exceed forecasts."

Nordstrom, a smaller retailer that caters to a more upscale consumer, did not change a sales forecast it gave this spring, predicting that its same-store sales -- which measure sales at stores open at least a year -- would rise by 4 percent to 6 percent for 2010.

Nordstrom shares fell 4.3 percent in after-hours trade.

At Kohl's, changes to its credit cards terms due to new legislation and a campaign to communicate that to customers could lower income by a combined $40 million in the second half of the year, the company warned.

In addition, costs to train staff at a fulfillment center for online orders and technology investments will lower the current quarter's results, Chief Financial Officer Wes McDonald said on a call with analysts.

Kohl's lowered its full-year profit forecast to $3.57 to $3.70 per share, below the average Wall Street forecast of $3.76, citing a 10 to 11 percent rise in expenses in this quarter and a 3 to 4 percent rise in the fourth quarter.

It expects earnings of 57 cents to 63 cents per share in the third quarter, below the average forecast of 74 cents.

Nordstrom stood by its previously issued 2010 earnings outlook of a range between $2.50 to $2.65, and cited its half-year and anniversary sales events that drive traffic and sales to stores.

The company, which operates its own credit cards, said it was reducing its reserve for bad debt. But it said credit card revenues should rise by $25 million to $35 million, below an earlier view of a rise of $35 million to $45 million, due to higher payment rates.

Market Share Gains

Both Kohl's and Nordstrom have been big market share gainers in their respective sectors and both have conservative management who are unlikely to raise guidance, said Walter Stackow, a senior analyst at Manning-Napier.

"To the extent there is more uncertainty about the second half of the year, maintaining guidance is still a positive," Stackow said. "In an environment with such uncertainty I'm surprised the stock was weak in the market."

While Nordstrom has curried favor with its well-heeled customers through its customer service and successful planned sales events, Kohl's has lured cost-conscious shoppers with its array of exclusive merchandise and outperformed both JC Penney Co Inc (JCP.N) and Dillard's (DDS.N) in terms of same-store sales growth.

Kohl's Mansell said that appropriate inventory levels helped margins, which edged up to 40.3 percent. The company expects further improvement in the third and fourth quarters.

Additionally, Kohl's signed up Capital One (COF.N) to issue its private label credit cards. The retailer gets a cut of the fees and interest charged to shoppers who use the cards.

Kohl's seven-year deal with Capital One replaces one with Chase Bank USA, part of JP Morgan Chase (JPM.N), and covers about 20 million accounts. It will largely function in the same way, with Kohl's handling customer service and advertising.

Double-Digit Gains

Kohl's posted a 13.5 rise in net income to $260 million, or 84 cents per share, on a 7.7 percent rise in sales to $4.1 billion. Both profit and revenue beat analyst expectations.

Same-store sales, or sales at stores open at least a year, rose 4.6 percent. The chain saw more transactions per store, though shoppers bought less per visit.

At Nordstrom, net income rose 39 percent to $146 million, or 66 cents per share, meeting Wall Street expectations.

Its revenue rose 12.7 percent, helped by a 8.4 percent same-store sales rise.

Kohl's shares closed down 2.7 percent to $46.50 on the New York Stock Exchange, while Nordstrom shares fell 4.3 percent to $32.00 in after-hours trade.

Shares of J.C. Penney, which reports its results on Friday, were relatively flat at $20.80, while shares of Macy's (M.N) and Dillard's (DDS.N) fell 1.3 percent and 1.7 percent.

Reporting by Phil Wahba and Alexandria Sage; Editing by Derek Caney, John Wallace and Robert MacMillan

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