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Kohl's earnings top estimates but shares plunge as outlook disappoints

  • Kohl's third-quarter earnings and sales top analysts' expectations.

  • The retailer raises its profit forecast for the full year.

  • Shares are down sharply as analysts were anticipating higher earnings for the fiscal year.

Kohl's on Tuesday reported quarterly earnings and revenue that topped analysts' expectations. While it also raised its profit forecast for the year, it was on the low end of what Wall Street had been calling for, and shares plunged more than 10 percent.

Its net income during the fiscal third quarter climbed to $161 million, or 98 cents per share, compared with $117 million, or 70 cents per share, a year ago. That was 2 cents ahead of analysts expectations, based on a survey by Refinitiv.

Net sales climbed 1.3 percent to $4.369 billion, slightly beating Wall Street expectations for $4.365 billion. Total revenue was $4.63 billion.

Sales at Kohl's stores open for at least 12 months were up 2.5 percent during the quarter, ahead of expectations for growth of 1.74 percent.

Kohl's gross margin rate also increased slightly during the quarter to 37 percent from 36.8 percent a year ago. The company has been working toward trimming excess inventory so that it is less reliant on promotions to sell merchandise, with the goal of improving profits.

Looking to the full year, Kohl's is now calling for adjusted earnings per share to fall within a range of $5.35 to $5.55, compared with a previous range of $5.15 to $5.55. Analysts polled by Refinitiv had been calling for earnings per share of between $5.12 to $6.

"We experienced strength across our entire apparel business, and our focus on speed to market and inventory management are driving relevancy with our customers, resulting in sales growth, margin expansion, and clean inventory levels," CEO Michelle Gass said in a statement.

Analysts are now watching closely to see how Kohl's performs this holiday season, as it tries to top last holiday quarter, when same-store sales grew nearly 7 percent.

Kohl's latest initiatives to grow sales include partnering with Amazon to accept the e-commerce company's returns, opening up smaller stores, and dividing some of its larger locations to make room for tenants like Aldi and gyms.

The retailer, like its peers, is benefiting from a strong consumer spending environment in the U.S. For the holidays, it is offering shoppers more perks than ever to visit its stores and website on key deal days like Black Friday and Cyber Monday. It's also one of the retailers that's expected to steal a share of the toy market left by Toys R Us' liquidation.

Kohl's shares as of Monday have rallied more than 60 percent during the past 12 months, bringing its market cap to about $11.8 billion.

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