November 19, 2019 / 12:30 PM / a month ago

UPDATE 2-Kohl's slashes profit forecast after dismal quarter

(Adds analyst quote, peer share movement, background)

Nov 19 (Reuters) - Kohl’s Corp cut its annual profit forecast on Tuesday after the department store operator fell short of quarterly comparable sales and earnings estimates, offering no sign that a much-hyped partnership with Amazon was bearing fruit.

Shares of the company fell more than 12% before the bell, also dragging down peers Macy’s and Nordstrom Inc by about 5%, as Kohl’s also reported declines in revenue and profit, as well as just 0.4% comparable store sales growth.

Kohl’s has been spending hard on a series of initiatives to restore growth, expanding a partnership with Amazon.com where customers can return products bought through the online retailer at Kohl’s more than 1,000 U.S. stores.

It hopes that the program, launched nationally in July, along with a push into millennial-focused designs and introduction of perks for shoppers will boost sluggish store traffic.

Comparable sales growth for the third quarter, however, was down from 2.5% a year earlier and only half of the 0.76% growth forecast by analysts.

The company, which holds a call with analysts before the opening bell, cut its full-year profit forecast to between $4.75 and $4.95 per share from a previous range of $5.15 to $5.45, but gave no reason in its statement for the revision.

Analysts have warned that promotions run alongside the Amazon deal could pressure the chain’s margins, which fell to 36.3% in the third quarter, worse than estimates of 36.63%, while selling and administrative expenses rose 3.2%.

“They have a lot of pricing pressure and their internet (online business) doesn’t make a lot of economic sense,” said Jerry Storch, chief executive officer of consultancy Storch Advisors.

“Their average unit price is so low, they have to sell a lot of units per order or they don’t make any money on the internet.”

Kohl’s has already forecast a steeper decline in full-year profit margin.

“We enter the holiday period with momentum and are strategically increasing our investments,” Chief Executive Officer Michelle Gass said in the statement.

“Investing in the short-term will support our strategies to drive profitable growth over the long-term.”

Kohl’s shares are down nearly 12% this year through Monday’s close, but that is roughly half of the S&P 500 department stores index’s 25% fall.

The results accompanied a sharp cut in forecasts by another major U.S. retailer, Home Depot Inc, earlier in the day and followed a Commerce Department retail report last week that suggested consumer spending was slowing faster than economists had expected.

On an adjusted basis, Kohl’s earned 74 cents per share in the third quarter, 12 cents lower than expectations. (Reporting by Nivedita Balu in Bengaluru; Editing by Shounak Dasgupta and Sriraj Kalluvila)

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