Kohl's reduces annual profit outlook heading into holidays

NEW YORK (AP) — Kohl's Corp. on Tuesday cut its full-year profit outlook after posting disappointing third-quarter results.

The company also reported a meager 0.4% increase in sales at stores opened at least a year. The outlook and anemic sales sent shares down more than 18%.

The weaker outlook raised concerns about the overall department store sector, which has been wrestling with shoppers’ increasing shift to online. Kohl's is seeing more competition from discount stores like T.J. Maxx, which offer a treasure hunt experience. TJX Cos. raised its full-year profit outlook Tuesday after reporting solid sales gains — its consolidated same-store sales gain was a better-than-expected 4%.

On Friday, J.C. Penney, which is in the throes of another reinvention, said its third-quarter loss narrowed compared to a year ago even as revenue declined. Penney said comparable store sales fell 9.3% for the quarter. Adjusted to reflect Penney’s move to exit major appliances, that figure fell 6.6%. Penney still sees sharp sales drops ahead. Macy’s and Nordstrom are expected to report third-quarter results on Thursday. Shares of Macy’s and Nordstrom were also down on Tuesday.

In a statement, Kohl’s CEO Michelle Gass tried to cast the report in a positive light, saying that the retailer is entering the holiday season with “momentum.”

“We believe that investing in the short-term will support our strategies to drive profitable growth over the long term,” she said.

Under Gass’s leadership, Kohl’s, based in Menomonee Falls, Wisconsin, has been experimenting with new initiatives. As of this summer, Kohl’s is accepting Amazon returns at all 1,100 stores. Customers can visit a local Kohl’s store and return eligible Amazon items without a box or label. The company says it has seen increased customer traffic as a result of this move.

Heading into the holiday season, Kohl’s also launched exclusive brands including Elizabeth and James from celebrities Ashley Olsen and Mary-Kate Olsen, as well as Scott Living, a home collection. It’s also launching outfit bars near the entrances of select stores aimed at younger customers who don’t want to spend time thumbing through the racks to find their size and style. The outfit bars mix different brands to offer new trendy looks.

Still, Kohl’s is operating under a more challenging backdrop, says Neil Saunders, managing director GlobalData Retail. Clothing continues to be a weak category, and retailers have been increasing discounting to increase sales, he says.

“Like others, Kohl’s felt the cold wind of this and struggled to generate growth,” said Saunders in a report published Tuesday. “It also had to respond to increased promotional activity in the market which helped to erode margins and profits. Ultimately, the outcome could have, and likely would have, been worse if it wasn’t for the various initiatives that Kohl’s has undertaken. “

Kohl’s reported third-quarter profit fell to of $123 million, or 78 cents per share, in quarter ended Nov. 2, from $161 million, or 98 cents per share, in the year-ago period.

Third-quarter earnings, adjusted to exclude debt-related costs, were 74 cents per share.

The results fell short of Wall Street expectations. The average estimate of eight analysts surveyed by Zacks Investment Research was for earnings of 85 cents per share.

The department store operator posted revenue of $4.63 billion in the period, which was down 0.1% from the year-ago period. The sales figure also did not meet Street forecasts of $4.67 billion, on average.

Kohl's now expects full-year earnings in the range of $4.75 to $4.95 per share. That compares to its previous guidance of $5.15 to $5.45 per share.

Kohl’s shares fell $10.72 to $47.69 in afternoon trading on Tuesday.

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