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Strong Back-to-School Helps Kohl’s Earn High Marks in Q3

Kohl’s Department Stores (KSS) reported financial results this morning for the quarter ended Oct. 31 that beat Wall Street estimates on both the top and bottom lines, sending its stock up by more than 5 percent in pre-market trading.

Revenues increased by 1.2% to $4.43 billion, above analyst estimates of $4.41 billion. Comparable store sales increased by 1 percent, capping four consecutive quarters of positive same-store sales.

CEO and president Kevin Mansell said, “Our 1 percent increase in sales was driven by strong back-to-school and late October selling periods offset by a weak September. Most of our key initiatives enjoyed strong success while weakness was concentrated in seasonal businesses.”

This makes the Menomonee Falls-based mainstream department store one of the only U.S. retailers to report a solid back-to-school season.

Kohl’s has been shifting its focus from private label to national brands, an effort it feels is paying considerable dividends. While inventory per store increased by 5 percent in the quarter, national brand inventory rose by 8 percent.

The company cited activewear as a particularly strong area, and reported that footwear and women’s apparel performed above average. Although children’s as a whole lagged the company performance, Carter’s and Entertainment Licensed products did very well in the quarter.

Within the women’s area, juniors showed improvement, with comps up by mid-single-digits in the quarter. The company is intensifying its focus on women’s apparel and accessories, and announced yesterday it was launching a limited edition collection by former Coach executive and designer Reed Krakoff.

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The Southeast was the strongest region for Kohl’s in the quarter, while the South Central region, particularly Texas, where low oil prices have hurt the job market, was the most challenged.

Gross margin declined 10 basis points to 37.1% of revenues, hurt by higher shipping costs incurred by the rapidly growing e-commerce segment.

Net income fell 15 percent from the prior year period to a better-than-expected $120 million, or $0.63 per share which, when adjusted for a debt extinguishment loss, was $0.75 per share, $0.06 above consensus estimates of $0.69.

The company opened two new stores in the quarter, bringing its total to 1,166 stores in 49 states. Kohl’s expects to have unique localized product assortments in each of its stores by the end of 2016.

Kohl’s is testing a 35,000-square-foot prototype that is much smaller than its typical store for smaller markets and urban areas that it hopes will help it expand its share among rapidly growing Millennial and Hispanic consumer segments.