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Markets News

UPDATE 2-Kohl's posts surprise profit, sees margin boost in holiday quarter

(Adds comments from analysts and CEO, details about sales; Updates shares)

Nov 17 (Reuters) - Kohl’s Corp on Tuesday posted a surprise quarterly profit and forecast strong margins for the holiday sales season, as the department store chain reins in costs through fewer discounts and job cuts.

The company’s shares, which have nearly halved in value this year, reversed premarket losses to rise 7%, as Kohl’s said it planned to invest heavily in athleisure and e-commerce with consumers mostly staying indoors due to the COVID-19 pandemic.

For the mid-priced chain, a 25% jump in digital sales in the third quarter hurt its margins as it incurred higher shipping charges, but the retailer’s move to simplify its pricing and promotions cushioned the blow.

Now, Kohl’s expects the benefit to persist into the fourth quarter.

“Pricing for us doesn’t mean we’re not going to be on sale. It just means that we’re trying to have more transparency with our pricing. So the customer can see the price more quickly,” Chief Executive Officer Michelle Gass told analysts.

Excluding items, Kohl’s earned 1 cent per share, versus analysts’ estimate of a 43-cent loss, as the retailer cut about 15% of its corporate jobs earlier in the year and slashed marketing spend in the quarter.

Still some analysts were cautious about Kohl’s upbeat margins.

“We believe consensus expectations for KSS’s January quarter gross margin is overly optimistic and under-estimating the highly promotional holiday environment,” CFRA Research analyst Camilla Yanushevsky said.

The company’s net sales fell 13% to $3.78 billion in the third quarter, below estimate of $3.86 billion.

“Kohl’s is doing a commendable job controlling what it can control, but we remain concerned on how quickly sales will recover – both this upcoming holiday season and in 2021,” Gordon Haskett analyst Chuck Grom said.

Kohl’s also said it plans to reinstate its quarterly dividend in the first half of 2021 after a COVID-19-led pause. (Reporting by Praveen Paramasivam in Bengaluru; Editing by Maju Samuel)

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