Menomonee Falls, Wis. — Beset by falling profits and shrinking comparable-store sales, Kohl's is fighting back with very tight inventory control and the expansion of its exclusive and private brand programs.

Home was one of the two weakest product categories at Kohl's during the 1,004-unit mid-level department store's third quarter, the company reported during its earnings conference call last week. But it was not an isolated segment. "All lines of business and all regions reported a decrease in comparable sales for both the quarter and year to date," said Kevin Mansell, president and ceo. Comps slid 6.7% in the quarter, and 6.0% year to date.

In the quarter ended Nov. 1, Kohl's reported net income of $160.2 million, or 52 cents per share, down from profit of $194.0 million, or 61 cents per share in the same period one year ago.

Year-to-date profit of $549.1 million, or $1.79 EPS, fell from $672.2 million, or $2.09 EPS.

Quarterly sales edged down 0.6% to $3.8 billion, while nine-month revenue has grown 1.5% to $11.2 billion. Both measures show the impact of the chain's continuing store-building campaign, with 75 new units having opened throughout 2008. Kohl's repeated its plan to open 50 new stores in 2009, of which 20 are scheduled for the spring. Also in the works are 60 remodels — compared to 36 this year, that are also set for the spring.

Kohl's Inc.'s total inventory for the quarter was $3.7 billion, reflecting a decrease of 5%. Inventory per store is down approximately 14% from last year — "stronger than the low-double-digit decreases that we had originally guided toward achieving," Mansell said, which Kohl's accomplished via significant reductions in fall seasonal inventories and strong cycle-time improvements in its receipt flow.

In addition, clearance inventory per store is down roughly in the 30% decrease range, he said.

"On a very positive note, our reduction on inventory per store of about 14% puts us in an excellent position going into the holiday season to flow new receipts," Mansell remarked.

Bracing for a season it described as "the most challenging in years," Kohl's this month launched "the most aggressive holiday marketing campaign in our history," Mansell said. The campaign is designed to showcase Kohl's as "the one-stop destination for shoppers looking to get the most for their money in a challenging economic environment. Shoppers can look for frequent sales events, aggressive discounts on popular merchandise earlier in the season, and an easy online shopping experience."

Kohl's has increased its overall marketing budget over last year by anteing its investment in its best-performing media, such as direct mail, internet advertising, and e-mail, "while at the same time focusing television and radio to align with the largest traffic opportunities," Mansell explained.

Kohl's successes with its private and exclusive national brands are giving the retailer encouragement looking ahead to what it expects will be a tough economic climate.

"We continue to be pleased with the performance of our 'Only At Kohl's' brand strategy, both our private and our exclusive national brands," Mansell said. "For the quarter, our exclusive and private brands were up over 150 basis points in penetration to 42% of sales, primarily due to our exclusive national brands. Year to date, the penetration is 42.4%, up over 300 basis points."

The chain's customer "continues to respond well to all of our exclusive brand launches, including our newest with Fila Sport," he added. "Our research shows this acceptance is driven by high brand awareness each [brand] has when we launch."