Canaccord Genuity Morning Coffee on Kohls (KSS): Lump of Kohl

May 11, 2012 10:22 AM EDT
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Canaccord Genuity Morning Coffee on Kohls (NYSE: KSS): Lump of Kohl.

Kohl’s first-quarter earnings fell 23% as the department store’s efforts to bring in customers by lowering prices and offering more exclusive merchandise sputtered. Kohl’s reported a profit of $154 million, or $0.63 a share, down from $201 million, or $0.69 a share, a year ago. Its forecast in February was $0.60, well below analysts’ average estimate. While other retailers like Target (NYSE: TGT) and Macy’s (NYSE: M), experienced high single-digits growth in same-store sales, Kohl’s lagged. It recently reported its sales for the quarter rose 1.9% to $4.24 billion, weaker than its February forecast for 3% growth and samestore sales inched up 0.2%, also below its forecast for a 1% gain. The department store struggled during the holiday season after pricing too aggressively for its price-sensitive clientele and ended up lowering prices this spring, leading to “significantly lower gross margins,” said CEO Kevin Mansell. Kohl’s hoped that like Macy’s, it would get business from J.C. Penney (NYSE: JCP) customers as the retailer remodels its stores and switched to a pricing strategy that pretty much eschews promotions. The company predicted second-quarter same-store sales will be flat to up 1% and backed its full-year profit guidance for $4.75 a share. Going forward, Kohl’s has increased inventory for the fall season, hoping to improve sales but its full-year forecast disappointed the Street’s prediction of $3.39 a share, seeing earnings of $3.25-3.30 a share.

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