Kohl's sharper focus on turnaround drives profit lift, shares surge

By Juveria Tabassum and Sanskriti Shekhar

Aug 27 (Reuters) - Kohl's KSS.N raised its annual profit forecast on Wednesday as the U.S. department store chain's years-long turnaround reduces costs and its fresher product line-up brings back customers, sending its shares up 20% in early trading.

The company also reported a second straight quarter of sales beat as efforts to reassess its product assortment pay off, even as it grappled with three CEO changes in as many years, with the latest leaving after about 100 days.

"We really think we're set up well ... to deliver value when it's going to become incredibly important to that customer in the back half and especially holiday," Chief Financial Officer Jill Timm said on a post-earnings call.

Kohl's has rolled out more coupons for branded products and introduced fresher items in its cheaper store labels to keep its lower and middle-income customers engaged when tariffs and still-high inflation have squeezed household budgets.

The company plans to reduce some orders from brands that make sharp price hikes due to the tariffs and keep private-label products affordable.

Backpacks, footwear and trendier denim products such as baggy pieces from Levi's LEVI.N were in demand during the Back-to-School shopping, said interim CEO Michael Bender.

Kohl's now expects annual earnings per share of 50 cents to 80 cents, compared with its earlier wide range of 10 cents to 60 cents.

The company's shares, which have a high level of short interest, have rebounded this year after a 51% drop in 2024 as they became a retail investor favorite.

"These results have probably convinced some people that Kohl's isn't in danger of financial distress, and they are covering their shorts," said David Swartz, analyst at Morningstar Research.

TRIM, TRIM, TRIM

Kohl's is closing underperforming stores and pruning its jewelry and women's apparel business to include fresher products. It also shuttered an e-fulfillment center in Ohio earlier this year.

Its partnership with LVMH-owned LVMH.PA high-end beauty chain Sephora, which it opened at all of its more than 1,100 stores in the U.S. this year, has also helped attract younger customers.

"The topline beat gives management some breathing room, but Kohl's is still stuck in the squeezed middle of retail — forced to discount heavily to move product while struggling to articulate a clear brand identity," said EMarketer analyst Suzy Davidkhanian.

Selling, general and administrative expenses fell 4.1% from a year earlier, following a 5.2% drop in the first quarter.

Kohl's adjusted earnings per share of 56 cents for the quarter ended August 2 raced past estimates of 29 cents, according to data compiled by LSEG.

Comparable sales fell 4.2%, smaller than estimates of a 5% decline, while net sales also topped expectations.

The Wisconsin-based company also tightened its forecast for annual and comparable sales, while raising its operating margin target for 2025.