Kohl's Corp.'s strategy to cut prices this spring led to a 23 percent drop in first-quarter profit, and the midpriced department store chain indicated it expects earnings in the second quarter will be below analysts' current expectations.
Shares of the department store chain fell more than 4 percent in late morning trading.
Like several other retailers, Kohl's is experimenting with new pricing strategies to wean shoppers off of temporary discounts that create pronounced peaks and valleys in business.
Kohl's lowered prices primarily on its store-label brands this spring. The moves hurt gross profit margins, but Kohl's said it also got hurt because it didn't have enough inventory to keep up with high consumer demand for those items. The new pricing comes at a time when shoppers are still cautious about their spending in a rocky economic recovery.
"There obviously are a lot of changes happening in our industry, but our inability to generate the kind of ... sales success we had in the past has really been a function of us not having the kind of value we need for our customer and not having the inventory levels in the right categories for the customer," said Kevin Mansell, chairman, president and CEO during an address to analysts Thursday.
Kohl's reported net income of $154 million, or 63 cents per share, for the three months ended April 28 compared with $201 million, or 69 cents per share, during the same period a year earlier.
The performance still beat the 60 cents per share that analysts polled by FactSet expected.
Revenue increased 2 percent to $4.24 billion from $4.16 billion. Wall Street expected $4.25 billion.
Revenue at stores open at least a year edged up 0.2 percent. This metric is a key indicator of a retailer's health because it excludes results from stores recently opened or closed.
Kohl's, based in Menomonee Falls, Wis., also said that it declared a quarterly dividend of 32 cents per share. The dividend will be paid on June 27 to shareholders of record on June 6.
The company anticipates second-quarter earnings of 96 cents to $1.02 per share. The outlook assumes a revenue increase of 2 percent to 3 percent, with revenue at stores open at least a year flat to up 1 percent. The revenue growth forecast implies revenue of $4.34 billion to $4.38 billion.
Analysts predict earnings of $1.13 per share on revenue of $4.38 billion.
Gross profit margin slipped to 35.9 percent from 38.1 percent in the year-ago quarter.
Kohl's , which had 1,134 stores in 49 states at quarter's end, reaffirmed its guidance for fiscal 2012 earnings of $4.75 per share. Analysts, on average, expect $4.74 per share.
During the conference call, Mansell told analysts that it was "impossible" to figure out what kind of impact Penney's new pricing strategy had on Kohl's business. J.C. Penney implemented on Feb. 1 a new strategy that involved getting rid of hundreds of sales and rolled out "everyday" low pricing. Penney is expected to report earnings results Tuesday.
Kohl's rival Macy's Inc. said Wednesday that its first-quarter profit rose a better-than-expected 38 percent. But investors sent its shares down nearly 4 percent because the department store chain mostly left its annual profit projection intact.
Macy's Chief Financial Officer Karen Hoguet told analysts during a conference call Wednesday that the chain has had a pickup in sales at stores in malls that also have J.C. Penney stores. The company declined to give details.
Kohl's shares fell $2.26 to $48.60 in trading. Shares have been trading from $42.14 per share to $57.39 per share over the past 52 weeks.