Kohl's Q2 Earnings Up 27% on New Brands' Success

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Department store operator Kohl's Corp. (KSS) Thursday reported a higher second-quarter profit as the company's new brands proved popular with shoppers.

A resolution of state income tax matters and a change in its accounting methods also helped boost earnings, the company said.

The company, which runs a chain of mid-priced department stores, posted net income for the quarter ended July 30, 2005 of $187.2 million, or 54 cents per share, up from $146.9 million, or 43 cents per share, in the year-ago period.

Analysts, on average, had expected per-share earnings of 52 cents, according to Reuters Estimates.

The fast-growing retailer, which has struggled with shaky sales and bloated inventory, introduced several new clothing lines to drive store traffic and boost sales. New brands included Chaps, Candies, and Royal Velvet and it recently announced a deal to sell Quiksilver Inc. (search) clothing under the legendary skateboarder Tony Hawk's (search) brand.

Consumers were snapping up the new items, Deutsche Bank Equity Research analyst Bill Dreher said. "The lack of clearance indicates the strong initial demand for full-priced sales." That strong demand meant that, even excluding the tax and accounting issues, Kohl's still managed to slightly exceed Wall Street's forecast, he added.

On a conference call, Kohl's said that it will continue to bring in new items focusing on new colors or variations of best-selling merchandise and that it plans to invest significantly in marketing new brands.

The company's net sales rose 15.6 percent to $2.9 billion in the quarter, while sales at stores open at least one year, a key measure known as same-store sales, rose 5.1 percent. Gross margin as a percentage of net sales in the quarter rose to 37 percent from 36.4 percent.

Looking ahead, the company said it expects to earn between $2.42 and $2.50 per share in fiscal 2005 and predicted that its same-store sales would post a mid-single digit percentage gain for the fall season. In May, the company had said that it would earn between $2.40 and $2.50 per share.

On the conference call, the company forecast earnings of between 43 cents and 46 cents per share for the third quarter, below analysts' average expectations for 48 cents per share. For the fourth quarter, the company said it expects to earn between $1.10 and $1.14 per share. Analysts forecast fourth-quarter earnings of $1.10 per share, according to Reuters Estimates.

Kohl's stock closed on Thursday at $54.75 on the New York Stock Exchange (search).