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(Reuters) - Kohl's Corp (KSS.N) said on Thursday it expects sales to rise this holiday quarter, but gave a profit forecast that missed Wall Street's expectations because of what it anticipates will be a highly competitive Christmas period.
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 (M.N) and J.C. Penney Co Inc (JCP.N) 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 that Wall Street analysts had been expecting, according to Thomson Reuters I/B/E/S.
"We are assuming it is going to be a very promotional Christmas, similarly to last year," Chief Executive Kevin Mansell told analysts.
Last year, discounts ate into profits and sales at Kohl's, which draws a more price-sensitive clientele than Macy's.
Kohl's shares fell 3.8 percent to $52.26 in midday trading.
S&P Capital IQ lowered its opinion on Kohl's stock to "hold" from a "buy" rating.
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.
Mansell said in an earlier 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 analysts' projections, suggesting the retailer was putting that problem behind it.
"I do believe they have the inventories where they need to be, and that can drive the holiday shopping season," said Brian Yarbrough, a consumer discretionary analyst for Edward Jones.
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 analysts' projections.
The department store chain has been able to boost its earnings per share by buying back stock, and said its board raised its stock-buyback 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 (DDS.N), 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 point to 37.1 percent, reflecting its ability to resist having to discount.
Dillard's stock rose 4.6 percent to $84.52.
Reporting by Phil Wahba in New York; Editing by Gerald E. McCormick, Maureen Bavdek and Jan Paschal