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Tickers in this Article: KSS, JWN, M, WMT, JCP
Kohl's (NYSE:KSS) beat analyst estimates with it's second-quarter earnings and also raised guidance for the full year, demonstrating once again that for retailers, an identical macro environment is causing wildly different results.

Strong Results and Outlook
Kohl's reported revenue of $3.7 billion and earnings of 77 cents per diluted share, beating street estimates of 73 cents. This was on a 4.6% decrease in comparable store sales (comps) for the quarter. Kohl's attributed the results to strong inventory management, private label sales and effective expense control.

The company provided guidance for the third quarter of diluted earnings per share (EPS) of 51-56 cents, and the fourth quarter of diluted EPS of $1.26-$1.34. This would indicate earnings of $3.02-$3.18 per share for fiscal 2008 versus previous guidance of $2.95-$3.15.

Performance Mirrors Housing Downturn
Kohl's was able to raise guidance despite incorporating a weak comparable sales decrease of 2-4 % for the last two quarters of the year, continuing the poor performance that has plagued the retail industry at stores open for more than a year.

According to CFO Wesley McDonald, sales performance geographically for Kohl's was almost a mirror image of the housing downturn currently impacting the U.S., with the weakest store performers concentrated in California, Arizona, Nevada, and Florida. These states have been hit with the largest declines in housing prices and the highest foreclosure rates.

Another interesting item from the earnings release was that, although Kohl's reported a cash and short-term investments balance at the end of the quarter of $ 287 million, during the first quarter, Kohl's had to reclassify $425 million of auction rate securities from short-term investments to long-term investments. These securities were marked down to $391 million by the end of the second quarter.

Auction rate securities are sold through a Dutch auction process at an interest rate that will clear the market at the lowest yield possible, giving all investors the same yield. The securities have a long-term maturity, but the interest rates on them are set on a short-term schedule. Investors treated these instruments as highly liquid investments, but as the credit crunch continued on, there were no bidders for the paper, causing the holders to be unable to sell them. Accounting rules have now forced companies to move these assets to the long-term category on balance sheets.

Retail Grab Bag
Results for retailers have varied widely during earnings season, sending mixed signals to investors.

  • Wal-Mart (NYSE:WMT) was able to raise guidance and reported positive growth in comps of 4.5% for its most recent quarter.
  • J.C. Penney (NYSE:JCP) revised its third quarter outlook below what analysts were expecting, but kept its full-year outlook the same. Its comps were down 4.3%.
  • Macy's (NYSE:M) also reported negative comps of 2.1% for the quarter and lowered its full-year forecast.
  • Nordstrom (NYSE:JWN) experienced a similar decrease in comps of 6%, forcing it to cut guidance for the full year. (To learn more about the critical same-store-sale metric, read Analyzing Retail Stocks.)
Bottom Line
Kohl's quarterly results demonstrate the wide variation in performance for retailers, despite a similar macroeconomic environment facing its customers. This is expected to continue during the balance of the current earnings season.

For more consumer spending, read Economic Indicators To Know.

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