Kohl's Profit Jumps 28%, But Outlook Remains Cautious

Better-than-expected sales and market-share gains helped middle-market retailer Kohl's Corp. (KSS) easily beat Wall Street's fourth-quarter estimates Thursday. However, the company gave a first-quarter outlook that was below analysts' expectations.

Tight inventory controls helped the company avoid deep discounts, which bolstered margins and allowed Kohl's to post a 28% jump in fourth-quarter profit. For the three months ended Jan. 30, the retailer recorded net income of $431 million, or $1.40 a share, up from $336 million, or $1.10, a year ago. Analysts, on average, forecast earnings of $1.37 a share, according to a survey by Thomson Reuters.

Sales advanced 8.5% to $5.68 billion from $5.24 billion in the prior-year period. Analysts were looking for sales of $5.62 billion. Meanwhile, same-store sales, or sales at stores open more than a year, rose 4.5%. Same-stores sales are considered to be a key measure of a retailer's health.

Careful inventory planning helped Kohl's avoid the type of fire-sale markdowns that can cripple margins and ultimately the bottom line. Gross margin, or the difference between sales and cost of goods sold, expanded 1.6% relative to revenue -- almost an epic move in margin terms.

"We improved our merchandise margins significantly through strong inventory management and successful private and exclusive brand strategies," said CEO Kevin Mansell in a statement. "Expenses were well managed while improving the store experience for our customers."

However, the downturn in consumer spending led Kohl's to issue an outlook that was below Wall Street estimates. For the first quarter, Kohl's sees earnings coming in at 48 cents to 52 cents a share, short of analysts' view for 54 cents.

"Consumers continue to be financially strained and are looking for value and ways to make their dollars go further," Mansell added. "As a result, we are planning conservatively in our sales expectations, inventory levels and expenses."

For the full fiscal year, Kohl's reported net income of $991 million, or $3.23 a share, up from $885 million, or $2.89 a share, in 2008. Net sales increased 4.8% to $17.2 billion.