Will Kohl's Claim the Department Store Crown?

Kohl's -- slated to report its quarterly earnings tomorrow -- is widely expected to be the winner in the department store sector.
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) -- Calling the department-store sector "troubled" is like calling Bernie Madoff a bad credit risk. But if there is one company that appears poised to pull ahead of the struggling sector, that company is


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The lower-priced department store has been winning shoppers through its compelling private label and exclusive brands, and these benefits are expected to be recognized when the company reports its second-quarter earnings before the bell on Thursday.

Analysts are expecting earnings of 73 cents, in-line with management's revised guidance, but about a 5% decline from last year. The company posted a profit of $236 million, or 77 cents a share, on revenue of $3.7 billion, in the second quarter of 2008.

Last week, Kohl's anounced that its July same-store sales rose 0.4% and, at the time, raised its second-quarter guidance to the range of 73 to 74 cents a share, up from a prior forecast of 56 cents to 64 cents.

Stifel Nicolaus analyst Richard Jaffe also expects strong margin recovery due to improved inventory management and tighter expense control.

Kohl's is also benefitting from the liquidation of competitors like Mervyns, and acquired some of its stores when it filed for bankruptcy. While most of the retail space is shrinking, Kohl's opened 19 new stores in the spring, and plans on a total of 55 new locations for the year, many of which will be in former Mervyn's locations.

One of the main questions for management tomorrow is how the later school start date and the shift of the tax free holiday into August will affect the company's third quarter, and whether shoppers seem to be increasing their spending on apparel and accessories.

BMO Capital Markets analyst Wayne Hood said Kohl's assortment and pricing could actually lead to a "strong back-to-school season," even when most retailers are expected to report weak results.

Other key questions for investors heading in tomorrow's results, include: What were inventory levels in the second quarter, and will any clearance merchandise carry over into the third quarter? Does the company plan on launching any new private-label brands? What does management expect for the holiday season?

Shares of Kohl's closed at $52.51 on Tuesday, and have been trading in the range of $24.28 and $56 over the 52-week period.


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reported a

90% plunge in its second-quarter profit

on Wednesday, but upped its full-year guidance.


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J.C. Penney

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are among the other department stores set to report quarterly results this week.

-- Reported by Jeanine Poggi in New York.

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