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Kohl’s, Dillard’s Profits Rise in 2Q

Kohl's chairman and ceo Kevin Mansell was less pleased with the retailer’s sales performance.

Kohl's

Kohl’s Corp. may have seen profits rise 16.5 percent in the second quarter, but chairman and chief executive officer Kevin Mansell was less pleased with the retailer’s sales performance.

The Menomonee Falls, Wis.-based retailer Thursday reported net profits of $303 million, or $1.09 a share, for the quarter ended July 30, from $260 million, or 84 cents, in the prior year’s quarter.

While earnings per share beat Wall Street analysts’ estimates of $1.08 a share, Mansell said during a conference call that, “We were not happy with our sales performance.” Sales for the quarter were up 3.6 percent to $4.2 billion, from $4.1 billion in the 2010 period, and comps rose 1.9 percent, below the company’s estimate.

The lack of a big apparel launch was one reason cited for what Mansell called a “subpar sales performance.” Also, Axcess, “a pretty big anchor brand that we purchased from Liz Claiborne, was eliminated,” he said. “It’s been a drag on the first half of the year.” However, exclusive brands such as Fila, Lauren Conrad, Simply Vera Vera Wang and Mudd achieved “strong double-digit increases.”

Kohl’s won’t want for launches in the third quarter, when its exclusive Jennifer Lopez and Marc Anthony brands bow. Mansell said the lines will help Kohl’s achieve a 4 to 6 percent sales increase in the third quarter. Comps are forecast to rise by 2 to 4 percent. Mansell raised Kohl’s full-year EPS estimate by 20 cents, from $4.40 to between $4.45 and $4.60 a diluted share.

Kohl’s e-commerce business is on plan to reach the company’s goal of $1 billion in annual sales. E-commerce sales in the quarter were up 36 percent over last year to $171 million. Kohl’s is delving deeper into sizes in an effort to grow apparel sales online and is dramatically increasing its investment in digital media.

There’s also a campaign to get more credit card customers. “History has proven that Kohl’s charge card holders are the most loyal customers,” said Mansell. “They have a significantly higher annual spend. As a result, we made changes in the incentives to open a Kohl’s charge account.” The retailer is focusing on signing new charge customers in the South Central region. A partnership with Capital One allowed Kohl’s to increase its approval rate by 300 basis points.

Kohl’s, which incurred cost increases of 10 to 15 percent in apparel, is planning inventories conservatively. “Increased penetration in private and exclusive brands will help us retain margins if there’s resistance to price increases,” Mansell said. “Staying within her budget is our customer’s number-one concern. We know we have to be very aggressive with marketing to motivate the consumer to buy.”

Sales, general and administrative expenses increased 0.7 percent for the quarter, well below the company’s 3 to 4.5 percent forecast. Operating income rose 14 percent to $510 million. Capital expenditures were $473 million for the first half of 2011. Kohl’s by the end of September will have unveiled 31 new stores. Its third e-commerce fulfillment center will be up and running in time for the holidays.

“Our stock is undervalued,” Mansell said. “Our peak working capital needs will be in the third quarter, but we still expect to buy back at least $500 million of stock in that quarter.”

Kohl’s closed up $3.21, at $47.50, on Thursday on the New York Stock Exchange, a 7.25 percent jump.

Meanwhile, Dillard’s Inc. late Thursday reported that second-quarter earnings nearly tripled as sales picked up 3.8 percent.

Net income for the 13 weeks ended July 30 was $17.6 million, or 32 cents a diluted share, eclipsing the 25 cents expected, on average, by analysts. Year-ago net profits were $6.8 million, or 10 cents a share.

Sales rose to $1.44 billion from $1.39 billion with overall revenues also up 3.8 percent to $1.48 billion. Comparable-store sales were up 6 percent, the company said, with gross margin from retail operations unchanged at 33.7 percent. Retail operations do not include the CDI Contractors LLC business unit, although its revenues are consolidated into net sales data.

For the six months, net income rose 69.1 percent to $94.2 million, or $1.66 a diluted share, from $55.7 million, or 80 cents. Net sales were up 2.4 percent to $2.91 billion from $2.84 billion.

“While we are monitoring the macroeconomic environment closely, we will continue to work to create clear distinction at Dillard’s with enhanced service levels to match our improving merchandise mix,” said ceo William Dillard 2nd.