Kohl’s Posts Higher Profit on Calif. Sales

In its first earnings report since its splashy entrance into the Southland 10 weeks ago, Kohl’s Corp. said Thursday that its fiscal first-quarter net income rose 4%, helped by strong sales in California.

The Menomonee Falls, Wis.-based retailer rang up a profit of $111 million, or 32 cents a share, in the quarter ended May 3, compared with $107 million, or 31 cents, a year earlier.

Sales were $2.1 billion, compared with almost $1.9 billion in the year-earlier period. Sales at stores open at least a year -- a key financial barometer for retailers -- slid 2.4%, contrasted with a 9.1% increase last year.

The results were in line with Wall Street expectations. But the company, with 492 department stores nationwide, called the quarter “very disappointing” and blamed a sluggish economy and weak demand for apparel, partly because chilly weather in some places made it hard to sell summertime clothes.

Nevertheless, Kohl’s is barreling ahead with expansion plans, which call for an 18% to 20% increase in square footage annually and more stores in the West.

“We continue to be pleased with California,” Chief Executive Larry Montgomery told analysts. “It got off to a huge bang. What we see in the market today is opportunity for a significant amount of additional stores in the L.A. area” and other parts of the state.

Kohl’s plans to open about 45 more stores this fall, including 13 in Arizona and one in Las Vegas. Next year, it will add an undisclosed number in the Los Angeles, San Diego, Fresno and Sacramento areas.

California is potentially a $2.2-billion market for Kohl’s, which has opened in areas teeming with families with incomes of $40,000 to $90,000, according to a report this week by UBS Warburg. The report predicts Kohl’s will generate $420 million in Southland sales in the next fiscal year, adding 4 to 7 cents to per-share earnings.

The 28 Southland stores that opened March 7 performed as expected, President Kevin Mansell said. At their current sales pace, each store will rake in 70% to 80% of the $21 million typically generated each year by a Kohl’s store.

In the current quarter, Kohl’s said it expected same-store sales to be flat to 3%, with earnings of 38 to 42 cents, within the range analysts were expecting.

Experts say it’s too soon to know what effect Kohl’s will have on California’s retail landscape, but they say the firm continues to attract attention with low prices and high-profile ads. “They didn’t just come in and do the opening push; they are continuing to push,” said Jack Kyser, chief economist for the Los Angeles County Economic Development Corp.

Analysts say the Mervyn’s chain is the most likely to be hurt by the Kohl’s onslaught. A majority of the 41 Mervyn’s stores in Southern California are within 10 miles of a Kohl’s.

On Thursday, Mervyn’s parent, Minneapolis-based Target Corp., released its fiscal first-quarter earnings and said same-store sales at Mervyn’s slumped 7.3% in the period ended May 3.

Target’s net income rose 1% to $349 million, or 38 cents a share, from $345 million, or 38 cents, a year earlier. Total sales were $10.3 billion, a 7.6% increase from a year earlier.

Kohl’s stock closed at $53.02, down 66 cents on the New York Stock Exchange. Earnings were released after the market closed.

Target’s shares closed at $34.46, down 1.47, also on the NYSE.