Kohl's struggles in Q2

MENOMONEE FALLS, WI —Sometimes even the highest of fliers have their wings clipped and start to float back down to earth, and proving the point the hard way was Kohl's Corp., whose earnings actually fell by 9.9 percent, to $112 million from $124 million last year, after a long stretch of double-digit gains, sometimes as high as 30 percent or more.

And flying along with the rest of the retail flock, instead of above it, Kohl's said same-store sales declined by 0.7 percent during the quarter, and could fall as much as 3.0 percent during the third quarter now under way.

Putting earnings under heavy pressure, in addition to sluggish same-store sales, was a combination of painfully thinning margins, sharply higher borrowing costs and bulging stockpiles.

Lifted by continued rapid expansion, sales at the mid-price retailer climbed by 14.9 percent, to $2.2 billion from $1.9 billion last year. But with rainy weather during much of the spring and summer putting a damper on traffic, same-store sales slipped by 0.7 percent, an anomaly for one of the nation's hottest retailers.

Acting as a drag on the bottom line, average gross margin thinned by 240 basis points, or 2.4 percentage points, to 33.4 percent from 35.8 percent, offsetting lower costs. Measured as a percentage of rising sales, operating costs were pared by 50 basis points, or half a percentage point, to 21.5 percent of sales from 22.0 percent.

Interest expense shot up by more than $10 million, or almost 80 percent, to $23.2 million from $13.0 million.

Bulging stockpiles remain a problem, and inventories rose faster than sales, climbing by 18.0 percent, to $1.7 billion from $1.5 billion, ahead of the 14.9 percent sales increase.