Profit Leaps at Retailer Kohl’s but Shrinks at Kmart and Saks

Highflying retailer Kohl’s Corp. on Tuesday reported a 48% jump in profit for its fiscal fourth-quarter and confirmed that it plans to expand into California, beginning with stores in the Los Angeles area in 2003.

Meanwhile, Kmart Corp., the nation’s third-largest retailer, and Saks Inc. each posted big declines in earnings for the latest quarter.

Kohl’s said profit rose to $178.5 million, or 52 cents a share, in the period ended Feb. 3, as it added stores in new markets and attracted new customers with low prices on clothing, accessories and housewares.

The results were 2 cents higher than the 50-cent average estimate of analysts polled by First Call/Thomson Financial.

It was Kohl’s third-straight quarterly increase in profit exceeding 40%.

Sales surged 38% to $2.22 billion, and sales at stores open at least a year jumped 13%. So-called same-store sales are a key measure of a retailer’s health.

Menomonee Falls, Wis.-based Kohl’s is taking market share away from department stores by offering convenient locations, low prices and popular brands such as Levi jeans and Nike shoes, analysts said.

Kmart, meantime, said its earnings fell 40% to $249 million, or 48 cents a share, in the quarter ended Jan. 31, and it said future sales may be vulnerable to economic weakness as well as disruptions from operational changes the company is making. The results were a penny better than analysts expected.

The Troy, Mich.-based company, which has been losing business to rival discounters Target Corp. and Wal-Mart Stores, said sales rose 4.8% to $11.64 billion. Same-store sales rose 2.1%.

Saks, which runs the upscale Saks Fifth Avenue as well as department stores, said its profit plunged 54% to $55.29 million, or 39 cents a share, in the period ended Feb. 3, far below the 73 cents analysts had expected.

The Birmingham, Ala.-based retailer said results were dampened by increased markdowns on year-end merchandise and losses related to its e-commerce operations. Revenue rose 3.9% to $2.12 billion.

Kohl’s said it plans to add 60 stores this year and 70 in 2002. Expansion plans in 2003 and 2004 include sites in Southern California, Arizona and Nevada, as well as a distribution center to serve the region.

The company, which opened 15 stores in Atlanta this month, owned 320 stores in 26 states as of Feb. 3, up from 259 stores a year earlier.

Kohl’s said it has limited interest in acquiring store sites being vacated by Montgomery Ward & Co., which is liquidating.

Some of those stores are 50% larger than the size Kohl’s is looking for, and many are in regional malls as opposed to more convenient strip malls, CEO Montgomery said.

The company also said it is comfortable with the range of earnings estimates for the fiscal first quarter and the year.

Forecasts range from 20 cents a share to 21 cents for the quarter and from $1.29 to $1.35 for the year, according to First Call.

In the latest quarter, Kohl’s said its gross margin, which measures the profit made on sales, increased to 33.1% of sales from 32.9%.

“What was particularly impressive to me was their ability to drive not only phenomenal sales growth, but gross margin improvement in what was a very difficult time for department store retailing,” Deutsche Banc analyst Joe Grillo said.

Grillo has a “strong buy” rating on the stock.

Declining stock prices and lower consumer confidence hurt sales and profits at many rival chains during the holiday season.

Kohl’s shares, which have risen 45% in the past year, fell 65 cents to close at $61.61 on the New York Stock Exchange. The company released its results after the close of regular U.S. trading.

Shares of Kmart fell 6 cents to close at $9.09, while Saks fell 20 cents to close at $12.75, both on the NYSE.