Kohl's banks on cost controls, leaner inventories to lift profit target

By Juveria Tabassum

(Reuters) -Kohl's topped quarterly profit estimates and raised its annual forecast on Wednesday, as the department store operator leans on lower costs and slimmer inventories heading into a discount-heavy holiday shopping season.

The company's shares, down 31.7% so far this year, rose 4% on Wednesday.

Clearance events at the start of the year helped Kohl's to offer fresher styles in baby products and women's dresses in the key spring shopping season.

Beauty retailer Sephora was again a bright spot and helped offset the impact from weaker sales in Kohl's core business of apparel and footwear.

Inventory in the second quarter declined 9%, after falling 13% in the preceding quarter. Gross margin rose 59 basis points, following an increase of 48 basis points in the first quarter.

Kohl's now expects annual earnings per share between $1.75 and $2.25, compared with $1.25 to $1.85 earlier.

Department stores are struggling with uneven demand from customers in different income groups as they hunt for bargains while spending on trendier products such as wide-legged jeans and logo-less shirts.

"Kohl's place in the retail landscape also makes it highly vulnerable to swings in consumer spending patterns," said Emarketer senior analyst Zak Stambor.

"While it is making progress on the bottom line, it must develop a stronger value proposition and unique market identity."

Kohl's would double down on promoting and advertising lower prices this year during what executives said would be a highly promotional holiday shopping season.

That echoed comments from Macy's, which lowered its annual net sales forecast after warning of weak spending and higher promotions.

Meanwhile, Nordstrom on Tuesday topped expectations for quarterly profit on robust sales at its off-price banner.

Kohl's quarterly comparable sales fell a bigger-than-expected 5.1%, and it now expects annual net sales to decline between 4% to 6%.

Excluding items, Kohl's earned 59 cents per share, beating estimates of 45 cents, as per LSEG data.

(Reporting by Juveria Tabassum; Editing by Sriraj Kalluvila)