Kohl's (KSS -2.01%) shares closed Thursday down more than 8% following a disappointing report for the third quarter of fiscal 2014. Comparable-store sales slipped nearly 2%, net income dropped 18% year over year, and the company lowered its earnings-per-share estimate for the year. The earnings press release was light on details, but the associated conference call had more meat.

It was a rough day for the retailer, as the report reflected a period of lighter shopper traffic. Investors are likely wondering whether Kohl's will be able to recover in the holiday quarter with fierce competition from the likes of Target (TGT -0.70%).   

What were the three key takeaways from Kohl's third quarter? 

1. New national brands announced 
Kohl's has recently emphasized a focus on growing the presence of national brands appearing alongside private-label and store-exclusive brands. Its current national brands include Nike, Gloria Vanderbilt, and Carter's.

According to Kohl's conference call, national brands had higher comps than the other product types in the third quarter. These brands accounted for 47% of overall sales. So it's noteworthy that Kohl's has new projects ready to launch.  

Spring 2014 will feature the launch of a new infant and young children's line that blends Kohl's existing Jumping Beans brand with Disney characters. The line will feature new style launches each season.

Fall will feature the launches of an IZOD menswear collection and a female-oriented Juicy Couture collection. The IZOD menswear collection will feature a range of sports and dress apparel that will include golf separates, suit separates, and dress shirts. 

Juicy Couture and Kohl's will design store-exclusive apparel and accessories for women and girls. The line will include clothing, shoes, handbags, jewelry, and home decor. 

2. Lower inventory levels
Kohl's admits to massively overstocking before last year's holiday shopping season. That excessive optimism led to painful merchandising margins and steep post-holiday markdowns.

The company has lower inventory levels on hand this year, balanced according to what's selling well. The inventory also isn't overly dependent on holiday-centric items, which must face markdowns directly after the holidays. 

3. Fourth-quarter guidance 
What does Kohl's forecast for the fourth quarter? Comps that are flat or down 2% and total sales down 2% to 4% -- both due to the shortened calendar in this year's quarter. Kohl's predicts diluted EPS between $1.59 and $1.74. 

For the fiscal year, Kohl's lowered its 2014 EPS estimate from $4.15-$4.35 down to $4.08-$4.23. 

Competitive advantage?  
Kohl's stores feature a mix of apparel, accessories, and home goods from private and national brands -- all set in a promotion-heavy environment. Big-name collaborators include reality star Lauren Conrad and fashion designer Vera Wang. Kohl's had 1,158 stores across the country at the end of the second quarter. 
 
The product mix is similar to the non-grocery side of Target. That's also part of the problem for Kohl's. Holiday shoppers who want a one-stop trip might prefer a superstore such as Target, where stylish clothing and home goods sit under the same roof as the ingredients for the holiday meal. However, Kohl's has the advantage of frequently occurring promotions.
 
Target hasn't reported its third-quarter results yet. Analysts estimate revenue of $17.4 billion and EPS of $0.86. Target has only met one estimate so far this year -- second-quarter EPS.

Foolish final thoughts 
Kohl's had a hard quarter, but it enters into the fourth quarter having learned from last year's inventory mistakes. However, the shortened holiday season this year will drive fierce competition. Kohl's does have an environment known for promotions, but will that prove strong enough to compete with Target and other stores that offer a broader product mix? Only time will tell.