By and  on February 25, 2010

Increased penetration from private and exclusive brands helped Kohl’s Corp. boost its gross margins and post a 28.3 percent increase in profits during the fourth quarter.

On the company earnings call Thursday, Kevin Mansell, chairman, president and chief executive officer, told analysts that women’s apparel and footwear had the greatest gains in fourth-quarter revenues for the Menomonee Falls, Wis.-based midtier retailer. The better results in women’s came from a “substantial improvement in our key private brand performance of Sonoma, Croft & Barrow and Apt. 9, as all three achieved double-digit positive [comparable-store sales growth] for the fourth quarter and positive comps for the year,” said Mansell.

Exclusive and private brands increased their sales penetration to 42.7 percent for the quarter, a 200 basis-point addition, and 44.3 percent for the year, up 220 basis points.

Net income for the three months ended Jan. 30 increased to $431 million, or $1.40 a diluted share, from $336 million, or $1.10, a year earlier. Sales for the quarter grew 8.5 percent to $5.68 billion from $5.24 billion, as comparable-store sales rose 4.5 percent. Analysts were looking for earnings of $1.37 a share on sales of $5.67 billion.

The performance of Kohl’s house brands was instrumental in lifting gross margin for the retailer, one of only a handful to report both top- and bottom-line growth for the quarter and year. The metric, essentially the percentage of sales not absorbed by merchandise costs and markdowns, grew to 36.4 percent of sales in the fourth quarter, from 34.8 percent in the final quarter of 2008. For the full year, it ramped up to 37.8 percent from 36.9 percent in 2008. Wesley McDonald, executive vice president and chief financial officer, said the firm expects gross margin to expand another 20 to 30 basis points in the current year.

For the year, net income rose 12 percent to $991 million, or $3.23 a diluted share, from $885 million, or $2.89. Sales gained 4.8 percent to $17.18 billion from $16.39 billion, and rose 0.4 percent on a same-store basis. E-commerce revenues increased 38 percent to “almost $500 million,” according to Mansell, following a 48 percent increase in 2008.

Investors liked the earnings improvement and guidance direction provided and sent shares up $2.49, or 4.8 percent, to $54.08 on Thursday. In the past year, the stock peaked at $60.89 on Oct. 15.

The push for differentiated branding isn’t slowing down, either. The LC Lauren Conrad collection, launched in October in about 300 stores, is being rolled out to all units next month, rather than for fall as originally planned. Kohl’s is also launching Helix, an opening price-point collection of young men’s tops, bottoms and shorts, this month.

On the call, Mansell said results in footwear and accessories were better than overall quarterly performance, with women’s and home about even and men’s wear and children’s lagging behind.

While upbeat about its own prospects, the firm’s outlook about consumer spending remained cautious.

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

He said the company “will be very competitive in order to continue to gain market share.”

In initial guidance, earnings per share is expected to range between 48 cents and 52 cents in the first quarter and between $3.40 and $3.63 for the year.

Comparable-store sales are slated to rise 1 to 3 percent in both the first quarter and year. The company, which finished the year with 1,058 stores, plans to add about 30 units this year and remodel another 85.

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