NEW YORK — Aggressive clearance activity to stimulate sales and reduce inventories during the second quarter left Kohl’s Corp. in the uncustomary position of posting lower earnings.

For the three months ended Aug. 2., the Menomonee Falls, Wis.-based discount and department store hybrid retailer said net income fell 9.9 percent to $112.1 million, or 33 cents a diluted share. That compares to last year’s earnings of $124.4 million, or 36 cents. Earnings beat the Wall Street estimate by a penny, as well as the 30- to 32-cents guidance Kohl’s issued last week. In May, Kohl’s had forecast earnings of 38 to 42 cents.

Sales for the period grew 14.9 percent to $2.21 billion from $1.92 billion, as same-store sales gained 1.1 percent.

“While we are not happy with our sales performance at all, we are happy with our clearance and our repositioning of inventories for the back-to-school and fall season,” president Kevin Mansell said on a conference call. “Although clearance affected profitability in the quarter, it was required for us to be comfortable with the overall level and content of our inventory.”

Like many retailers in the quarter, markdowns needed to move merchandise eroded the firm’s gross margin, in Kohl’s case by 240 basis points to 33.4 percent of sales. That was, however, partially offset by a 50 basis-point reduction in selling, general and administrative costs to 21.5 percent of sales.

“In our view, Kohl’s is taking the necessary steps to better position itself for 2004, particularly on the inventory and expense front,” wrote Smith Barney broadlines analyst in a research note. “We also believe that the ‘bad news is out’ and investors are focused on the back half of 2003.”

For the first half of the fiscal year, Kohl’s reported a 3.4 percent fall in net earnings to $232.2 million, or 65 cents, from $231 million, or 67 cents, last year. Sales for the first six months increased 14.1 percent to $4.33 billion from $3.79 billion, and comps decreased fractionally, or 0.7 percent.

In guidance, Kohl’s forecast third-quarter earnings per share of 44 cents on a same-store sales gain of 3 percent.

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