Kohl's profit beats Street; outlook falls short

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By Phil Wahba

NEW YORK (Reuters) - Department store operator Kohl's Corp reported a larger-than-expected quarterly profit on Thursday, but gave a holiday-period outlook that was below Wall Street estimates.

Kohl's results echoed a report from rival Macy's Inc on Wednesday, showing that major department store chains are trying to tone down expectations of a major consumer comeback during the holidays.

Kohl's shares were up 0.7 percent at $54.95 on the New York Stock Exchange in midmorning after rising nearly 2 percent earlier in the session.

On Wednesday, Macy's beat profit expectations for its third quarter, but shares fell 8.1 percent after its projections for the final quarter of the year disappointed Wall Street.

The strength of Kohl's exclusive brands and its price positioning in the recession have protected it from a similar investor backlash, an analyst said.

"Kohl's has continued to outperform most other department stores in terms of same-store sales, and it is a value-oriented chain," said Matt Arnold, an analyst with Edward Jones.

"Most retailers realize there is plenty of uncertainty in terms of consumer demand and how aggressive competitors could be with discounts in the fourth quarter," he said, explaining the chains' cautious profit projections.

Kohl's Chief Executive Kevin Mansell said in a statement that he expected customers "to continue to be conservative in their spending during this holiday season."

In a later call with investors, Mansell said he expects the "holiday season to continue to be a fight for market share."

As with other retailers, Kohl's has managed inventory more tightly in the past year in an effort to avoid having to sharply discount merchandise as it did last year.

Chief Financial Officer Wes McDonald said he expected inventory levels in the fourth quarter to be similar to those of a year earlier.

Q3 EXCEEDS EXPECTATIONS

Kohl's net profit rose 20 percent to $193 million, or 63 cents a share, in the third quarter ended October 31, from $160 million, or 52 cents a share, a year earlier.

The analysts' average estimate was 61 cents per share, according to Thomson Reuters I/B/E/S.

McDonald said that the chain's higher-margin exclusive brands, which include the Simply Vera Wang and Dana Buchman women's clothing lines, made up 45 percent of sales during the quarter, an increase of 2.7 percentage points.

Sales rose 6.5 percent to $4.1 billion, just above analysts' estimates of $4.0 billion, and sales at stores open at least a year were up 2.4 percent.

Department stores have only recently begun to see sales stabilize. Last week, Kohl's reported same-store sales had risen 1.4 percent in October.

Kohl's forecast earnings of $1.14 to $1.24 per share for its fourth quarter, which began this month. Analysts on average were expecting $1.25, according to Thomson Reuters I/B/E/S.

Kohl's expects total sales to rise 3 to 6 percent in the fourth quarter, with same-store sales ranging from a 1 percent decline to a 2 percent gain.

Kohl's said it operated 1,059 stores at the end of the third quarter, up from 1,004 a year earlier. The chain said it planned to open 30 new stores in 2010, up from an earlier forecast of 20 to 25 new locations.

(Reporting by Phil Wahba; Editing by Derek Caney, Lisa Von Ahn and Matthew Lewis)

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