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.