By Savyata Mishra
(Reuters) -Kohl's Corp on Wednesday reported a surprise profit as its new CEO's efforts to turn around the company that saw its margins slump last year started showing results, sending the department store chain's shares up as much as 19%.
The company also maintained its full-year targets even as it posted a bigger-than-expected drop in quarterly comparable store sales.
Kohl's (NYSE:KSS) is benefiting from CEO Tom Kingsbury's efforts to reduce reliance on margin-sapping discounts to cut inventory and focus on in-demand categories including work wear.
Fitch analyst David Silverman said the quarter was "a step in the right direction for Kohl's to position 2023 as a year of operating income and cash flow growth."
Shares of Kohl's, which lost nearly half their value in 2022, were up about 8% at $20.86 after the company also reported a 67 basis point improvement in quarterly gross margin from a year earlier and a drop in operating expenses.
Earnings per share came in at 13 cents, beating analysts' average expectation of a loss of 42 cents, according to Refinitiv IBES data.
The company's inventory also fell 6%, compared to a 4% rise in the prior quarter.
"We made progress against each of our key priorities for 2023 despite continuing to operate in a challenging macroeconomic backdrop ... it will take time for the full impact of our efforts to be realized," Kingsbury said on an analyst call.
For full-year 2023, Kohl's maintained its forecast for sales and profit.
"The middle-income customer is being squeezed," Kohl's Kingsbury said, as the company flagged weaker consumer spending.
Several U.S. retailers are facing slowing demand as inflation-hit customers curb spending on non-essential items. Target (NYSE:TGT) and home improvement chain Home Depot (NYSE:HD) have taken a conservative approach in their annual forecasts.
The challenging retail environment drove a 4.3% decline in Kohl's first-quarter comparable sales, compared with estimates of a 3.9% fall.