Dive Brief:

• Kohl's announced Thursday that Chief Financial Officer Wesley McDonald will retire in late spring 2017 following 14 years with the discount department store retailer.
   
• McDonald is going out on a high note: Kohl’s shares spiked 7.2% in premarket trading Thursday after the discount department store retailer reported third quarter profits of $146 million, or 83 cents per share, up from $120 million or 63 cents per share a year ago. Adjusted earnings 80 cents per share beat the FactSet consensus expectation for 70 cents.

• Kohl's posted Q3 revenue of $4.33 billion, down from $4.43 billion last year, but beating the FactSet expectation for $4.32 billion. Same-store sales fell 1.7%, just short of the Retail Metrics forecast for a 1.6% decline — the company's third consecutive negative same-store sales decline following a string of five straight positive quarters, according to Retail Metrics analyst Ken Perkins.

Dive Insight:

Kohl’s has had a tough time executing its turnaround, but this report suggests the retailer may be getting some traction just ahead of the holidays. Kevin Mansell, the retailer's chairman, CEO and president, said Thursday that Kohl's has a handle on its inventory and expenses. 

"We are pleased to see continued improvement in our sales trends. Our back-to-school season was strong, followed by a soft September, and progressive improvement throughout October,” Mansell said in a statement. “We are encouraged by these trends as we enter the holiday season. Our teams did an excellent job managing inventory. Expenses were also well-controlled as substantially all teams outperformed their plans."

Inventory improvement is key to avoiding the level of discounting that Kohl’s reverted to last year at the holiday season, according to Conlumino retail analyst Håkon Helgesen. That's also helped by the technical financial progress the company has made, and could be furthered by what appears to be a stronger holiday marketing campaign this year, Helgesen added.

Kohl’s progress right now is staked on the nitty gritty — small improvements in sales, movement through inventory and cost cutting. “The general direction of the company looks reasonable as it approaches the critical holiday trading period,” Helgesen wrote in a note emailed to Retail Dive. “Sales trends improved through October and inventory levels look relatively clean. Kohl’s is also up against some softer comparatives in its final quarter, which should help to lift year-over-year performance.”

But Kohl’s reliance on discounting could get it into trouble. “The one note of caution over holiday trading comes on the discounting front,” Helgesen said. “Last year Kohl’s was highly promotional, and this year the market will continue to be very price-led. Ultimately this could dilute any profit gains made from improved volumes.”

Kohl's will also spend the holiday season searching for McDonald's replacement. Mansell praised the outgoing CFO role in the company's turnaround.

“Wes has played an important role in the company’s growth and development over the last 14 years," Mansell said in a statement. "His business knowledge and financial expertise have been critical in our success and his communication with the investment community has always been transparent and consistent."