May 22, 2018 / 11:33 AM / a year ago

UPDATE 4-Kohl's warns of slower sales growth in second half of year; shares drop

(Adds details on gross margins; updates share price)

By Aishwarya Venugopal

May 22 (Reuters) - Kohl's Corp warned of slower same-store sales growth in the second half of the year on Tuesday, overshadowing first-quarter profit and revenue that beat analysts' estimates, sending its shares down more than 7 percent.

The U.S. department store chain saw higher sales in the quarter thanks to Mother's Day and other discounts grouped under its Friends & Family promotional event, but said it expects headwinds for growth in the third and fourth quarters.

The company raised its annual earnings forecast, while maintaining expectations for same-store sales.

Kohl's now expects adjusted earnings of between $5.05 and $5.50 per share for the 2019 fiscal year, compared with an earlier forecast of $4.95 to $5.45.

The increase in the earnings forecast was not as high as it could have been, given Kohl's strong performance in the first quarter, said Kim Forrest, senior equity research analyst at Fort Pitt Capital Group in Pittsburgh.

"It looks like they're looking for the stores not to perform like they did this quarter going forward," she said.

U.S. department store chains, which have generally struggled in recent years as fewer shoppers visit malls, have reported a mixed set of results for the quarter.

Like Kohl's, Macy's raised its annual profit forecast but warned that the timing of promotions — shifting promotional events from the second quarter to the first — would be a "slight negative" on same-store sales in the second half of the year.

Meanwhile, Nordstrom Inc and J.C. Penney reported lower-than-expected comparable sales for the first quarter.

Sales at Kohl's stores open for at least 12 months climbed 3.6 percent in the first quarter ended May 5, with promotions contributing 320 basis points. Analysts on average had expected a 2.7 percent increase, according to Thomson Reuters I/B/E/S.

The company's gross margins rose in the quarter and inventories fell 6.6 percent.

"Looking at the big picture, Kohl's comparable sales did increase ... this growth is still a strong story," said Bob Phibbs, chief executive officer of New York-based consultancy firm Retail Doctor.

Kohl's shares, which rose 6 percent in premarket trading, reversed course and fell as much as 7.4 percent to $60.62 in afternoon trade.

The company's net income rose 13.6 percent year-over-year to $75 million. Excluding one-time items, Kohl's earned 64 cents per share, topping analysts' estimates by 14 cents.

Revenue rose 3.5 percent to $4.21 billion and exceeded expectations of $3.95 billion. (Reporting by Aishwarya Venugopal and Nikhil Subba in Bengaluru; Editing by Sai Sachin Ravikumar, Bernard Orr)

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