Kohl’s Corp. missed its first-quarter sales mark as budget shoppers postponed purchases, but the company managed to boost earnings 6 percent by maintaining gross margins.
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The results stood in contrast to Macy’s Inc.’s fivefold increase in profits Wednesday and spoke to the disproportionate impact of higher gasoline and food prices on lower-income consumers.
Come fall, both retailers will face their own inflation problems as apparel cost increases of 10 to 15 percent filter through to consumers. Department stores are expected to fare better than specialty players given their wider assortments and a broader vendor base, but it’s still unclear what will happen as prices rise.
Kevin Mansell, Kohl’s chairman, president and chief executive officer, said early tests in denim, men’s basics and children’s showed that raising prices by a percentage in the high-single digits cut unit sales by low-single digits but led to a midsingle-digit increase in dollar sales.
But Mansell cautioned analysts on a conference call that the tests were “relatively small when you consider what we’ll be looking at in fall, where price increases are across the whole store.”
“There’s really been no precedent for this in this space,” said Liz Dunn, analyst at FBR Capital Markets. “It’s all a little crazy-making, but I think Kohl’s early experience is encouraging, for sure.”
Dunn described Kohl’s first-quarter results as “pretty weak” excluding the retailer’s $445 million in share repurchases, which boosted earnings per share.
First-quarter profits at the Menomonee Falls, Wis.-based chain rose to $211 million, or 73 cents a diluted share — 1 cent better than the 72 cents expected, on average, by analysts monitored by Yahoo Finance. Year-ago earnings were $199 million, or 64 cents.
Sales for the three months ended April 30 rose 3.1 percent to $4.16 billion from $4.04 billion a year earlier, and same-store sales grew 1.3 percent. Kohl’s was looking to boost sales by 4 to 6 percent on a 2 to 4 percent comp rise.
Gross margin expanded by $49 million, but rounded off to 38.1 percent of sales for both periods. Selling, general and administrative expenses rose by $33 million, inching up to 25.7 percent of sales from 25.6 percent a year earlier.
“We weren’t happy with our sales performance in the first quarter,” Mansell said, adding that shoppers were very focused on buying closer to need.
“When she doesn’t have a need — which she really didn’t have in March and April — she delays buying,” he said. “We’re probably going to get some pent-up seasonal demand and, to be honest, that’s not factored into our guidance.”
Kohl’s projected second-quarter profits of between 96 cents and $1.02 a share versus the $1 analysts had penciled in. Factoring in earnings so far and share repurchases, Kohl’s raised full-year guidance to between $4.25 and $4.40 a share from the previous range of $4.05 to $4.25.
The company also declared its first quarterly dividend, of 25 cents a share, payable June 29 to shareholders of record June 8.
Kohl’s stock gained 3.9 percent Thursday to $55.68 as the S&P Retail Index rose 1 percent to 551.34 after hitting a new all-time high of 551.76 earlier in the day.