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NEW YORK — Apparel felt the sting of lower same-store sales as Kohl’s Corp. weathered “disappointing” first-quarter earnings growth during what chief executive officer Lawrence Montgomery bemoaned the “toughest quarter in the company’s history.”

This story first appeared in the May 16, 2003 issue of WWD.  Subscribe Today.

Women’s, men’s and children’s apparel each experienced a 3 percent decline in comparable-store sales during the quarter, although accessories led merchandise categories with a comp advance of an equal amount, Kevin Mansell, president, said on a conference call with analysts.

For the three months ended May 3, the Menomonee Falls, Wisc.-based department store chain said net income increased 4.1 percent to $111 million, or 32 cents a diluted share. That compares with last year’s earnings of $106.6 million, or 31 cents. Earnings per share matched the Wall Street consensus estimate. Last week, Kohl’s cautioned that its earnings would come in below analysts’ forecasts and would fail to meet its own guidance of 36 to 40 cents. The firm matched its revised guidance.

Sales for the period climbed 13.2 percent to $2.12 billion from $1.87 billion a year ago, as same-store sales dropped 2.4 percent. By month, February comps fell 4.6 percent, March inched up 0.4 percent and April same-store sales dropped 4.1 percent.

“Obviously, we are very disappointed with the overall results for the quarter but we are pleased with the liquidation of clearance,” Mansell said on the call. “We had, as you know, a very late start on the sale of spring apparel, and as more normal temperatures arrived in the country, we have seen the customer respond.”

After identifying the Southwest and South Central U.S. as the best regions during the quarter and the West and Northeast as the “most difficult,” he singled out juniors for its strong performance within women’s wear.

Underscoring the difficulties of the quarter, he added, “I am also pleased to say that in partnership with our vendors, we have been very aggressive in clearing our goods.”

A firm with little experience at anything other than expansion and growth, Kohl’s costs rose incrementally throughout its operations, which helped account for sales outpacing earnings. Gross margin as a percentage of sales nicked down to 35 percent from 35.1 percent in the prior-year period, as merchandise costs rose to 65 percent from 64.9 percent. Selling, general and administrative costs equaled 22.4 percent of sales, up from 22 percent, and depreciation and amortization costs increased 20 basis points to 2.6 percent from 2.4 percent a year ago. Preopening expense, however, fell to 0.7 percent of sales from 0.9 percent.

All those small costs added up to a 6.6 percent decline in operating income to $196.2 million from $184 million a year ago. Further depleting the bottom line was a 40.8 percent rise in interest expense to $17.8 million from $12.6 million a year ago. As a percentage of sales, interest expense increased 30 basis points to 0.9 percent from 0.6 percent.

Taken as a whole, profits before income taxes grew 4.1 percent to $178.5 million from $171.4 million a year ago, but as a percentage of sales they dipped 80 basis points to 8.4 percent.

During the quarter Kohl’s opened 35 new stores, and entered the new markets of Los Angeles with 28 stores and San Antonio with 3 stores. In the third quarter, the firm said it plans to open about 45 stores, including in Phoenix and Las Vegas.