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Kohl's Corp. (KSS) lifted its full-year guidance after posting better-than-expected second-quarter earnings, but the increase was tempered by the retailer's conservative view for the third quarter.

Earnings for the latest period are expected to be below analysts' expectations, while comparable-store-sales are projected to fall more than their second quarter decline. Gross margin improvement is also projected to slow in the second half.

"We're learning every day we need to give better value to drive more traffic because consumers are still so reluctant to spend," Chief Executive Officer Kevin Mansell said in an interview. "As a results we will use some of the margin benefit we have been getting from improved inventory management and technology to give customers that better value."

Kohl's expects "the second half of the year to be a continued fight for market share," with this Christmas just as promotional as last year, Mansell said.

But the retailer is anything but conservative about its expansion, wanting to peg off of the improvements in customer traffic and market share it saw during the second quarter in all areas in which the 1,022 department store chain operates.

Kohl's plans to open 20 to 25 stores next year could be greatly increased by opportunities created as other retailers slim down or go out of business as the retail recovery lags other economic indicators.

"If opportunities present themselves we will be aggressive," Mansell said. "We have a list of locations we'd like to get. It all depends on how competition shakes out."

Kohl's has already demonstrated its drive buy purchasing 37 defunct Mervyn's stores, mainly in California, in January, which will reopen as Kohl's stores Sept 30.

The retailer is also expanding its base of credit card customers, which are its most profitable customers. The effort is not being done by lowering its standards, but by holding more sales that are tied directly to Kohl's credit cards and seeing new card holders come in from other department stores and specialty stores, Mansell said.

Kohl's is benefiting from its private label and exclusive apparel offerings, which supply a more differentiated offering and can provide better margins. Kohl's, like other retailers, is also enjoying lower costs for merchandise in general. "The worldwide economic depression is definitely helping our buying costs," which will be about 5% lower for Kohl's in the third quarter than a year ago, Mansell said.

Kohl's early Thursday posted second-quarter earnings of $229 million, or 75 cents a share, down from $236 million, or 77 cents a share, a year earlier, and ahead of analysts' expectations for 74 cents. Net sales increased 2.2% to $3.81 billion, in-line with Wall Street's expectations.

The company sees full-year earnings per share of 2.59 to $2.70, above its earlier projection of $2.19 to $2.42, and ahead of analysts' estimates for $2.78.

Kohl's expects third-quarter earnings of 40 cents to 44 cents a share, while analysts were projecting earnings of 47 cents a share.

Third-quarter comparable-store-sales are expected to fall 3% to 5%, compared with the second's quarter's 2.3% decline. Accessories, home goods and footwear were the best performing categories in the second quarter.

Gross margin is expected to increase 10 to 20 basis points in the third quarter, and 20 to 30 basis points in the fourth quarter compared to last year, and the second quarter's 40 basis point improvement.

Kohl's shares were recently off $1, or 1.9%, to $51.26.

-By Karen Talley, Dow Jones Newswires; karen.talley@dowjones.com; 212-416-2196