This Misstep Crushed Kohl’s Margins

Mid-sized department store chain Kohl’s Corp’s (NYSE:KSS) first-quarter results were hit by a decline in gross profit margins due to price cuts designed to restore sales volumes.

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According to Chief Executive Kevin Mansell, high prices during the holiday season turned off the chain’s price sensitive clientele; prices had to be rolled back this spring and that led to “significantly lower gross margins.” Margins this quarter fell 2.2 percent to 35.9 percent of sales.

Net earnings for the first quarter were $154 million (63 cents a share) compared to $201 million (69 cents a share) in the year-ago period. Analysts had expected quarterly earnings of 61 cents a share.

For the subsequent quarter, Kohl’s said it expects earnings of 96 cents to $1.02 a share, which is lower than the analyst estimate of $1.13 per share.

For the full year to January 2013, the retailer reiterated its forecast of earnings of $4.75 a share.

According to analysts, Kohl’s failed to take advantage of competitor J.C. Penney’s (NYSE:JCP) new pricing strategy that does away with sales events, which would have given the company an opportunity to lure disgruntled J.C. Penney shoppers.

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