What happened

Shares of Kohl's Corporation (NYSE:KSS) were heading south today after the department-store chain came up short on earnings in its third-quarter earnings report. As of 11:29 a.m. EST, the stock was down 3.7%.

Kohl's report was actually better than expected in some ways as comparable sales ticked higher by 0.1%, the first positive growth in seven quarters. However, investors instead focused on falling profits.

The exterior of a Kohl's department store

Image source: Kohl's.

So what

Kohl's said overall revenue inched up 0.1% to $4.33 billion, ahead of expectations of $4.3 billion as comparable sales were better than expected. However, gross margin contracted by 30 basis points to 36.8%, while general and administrative costs rose 1.4%, showing that the better-than-expected top-line performance came at a cost. 

As a result, adjusted earnings per share fell $0.80, to $0.70, missing estimates at $0.72. 

CEO Kevin Mansell said the traffic momentum the company saw in the first half of the year continued into the third quarter, adding that the back-to-school season and the second half of October were particularly strong. 

Now what 

Kohl's also raised the bottom end of its full-year earnings guidance, calling for adjusted EPS of $3.60-$3.80, up from a previous range of $3.50-$3.80, which compares to analyst estimates at $3.76. 

Given the respectable results and guidance lift, it was surprising that the stock fell on the report. On the other hand, Macy's (NYSE:M), which also reported earnings this morning, saw its shares spike despite reporting a sharp drop in comparable sales but an increase in earnings. That may indicate that the market is more concerned about the bottom line at the moment as retailers are in a broad retreat. However, that may be a mistake, as ongoing comparable-sales declines will probably translate to lower profits over time. Overall, there's nothing alarming in this quarterly report for Kohl's investors.

Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.