Kohl’s reported on Thursday that same-store sales declined 1.8%, its second straight quarterly decline, missing an analyst forecast of a 1.7% fall. But shares rose 9.6% in eary market trading on the generally favorable report, which included lower inventory levels that helped boost gross margins to 39.5% from 38.9% in the year ago period.
Adjusted earnings were $1.22 per share on a 2% revenue decline to $4.18 billion, beating Consensus Matrix estimates for earnings of $1.03 per share and revenue of $4.16 billion.
After suffering a difficult first quarter, when the retailer reported that profits sunk 87%, results signal a slow path toward a rebound. Kohl's expects fiscal year adjusted earnings of between $3.80 and $4.00 per share, down from its previous forecast for between $4.05 and $4.25.
Kohl’s could be on the road to recovery. The retailer has received high marks for its store locations (away from faltering malls, which makes them more convenient and efficient), a good mix of brands and a fiercely loyal customer base for which it has attempted to make shopping easier, in stores and on mobile.
Kohl's has also closed under-performing stores, and now runs 1,150 stores compared to 1,164 locations a year ago. In February Kohl's said it would close 18 underperforming stores this year, representing less than 1% of its total sales, but that may not be enough, especially considering the retailer's ongoing difficulties with disorganized stores and long checkout lines.
But analyst Ken Perkins, founder/president of Retail Metrics, said in a note to clients that the hope found in Kohl's results, like Macy's on the same day, comes from low expectations.
"We note that both retailers [Macy's and Kohl's] guided FY16 earnings below the current consensus and while revenues and same store sales for both department store chains beat forecasts they were still negative," he wrote in a note to clients Thursday.
Despite doing many of the right things, the retailer has struggled to come back from distressing first-quarter results that illustrated its many pain points. But that may be changing, or, at least, there are signs of improvement in this report. Kohl's CEO Kevin Mansell said there’s room for growth.
"Our sales improved over our first quarter results, but were below our expectations,” Mansell said in a statement. “We are encouraged by the performance of juniors and young men's as we enter the Back-to-School season. Our inventory management initiatives helped us to achieve a strong increase in gross margin with ending inventory per store down significantly from last year. Our associates throughout the organization continue to effectively manage expenses in response to changing sales trends."