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Kohl's Corp. (KSS) is eyeing more expansion, in addition to improving existing stores, as a strategy for coming out of the recession ahead of competitors and remaining there.

"The difference between a Kohl's store and another department store will be very stark," Chief Executive Kevin Mansell said in an interview with Dow Jones Newswires. "We can separate ourselves" by investing while others are cutting back.

The comments came after Kohl's, whose competitors include Macy's Inc. (M), J.C. Penney Corp. (JCP) and Dillard's Inc. (DDS), posted a less-than-expected 10% drop in first-quarter earnings as revenue and margins improved. The retailer on Thursday also raised its full-year earnings target to $2.19 to $2.42 a share from $2 to $2.30.

The results compare with Macy's loss of $88 million, or 21 cents a share, on falling sales and margins. Macy's, which released its earnings Wednesday, is the only one of Kohl's department-store rivals to report first-quarter results so far.

"Of course we have to continue executing," and Kohl's sees the gains from its current performance adding to its ability to expand from a base of more than 1,000 U.S. stores, Mansell said.

Kohl's initiatives include spending on technology to improve store operations. "Everything may not pay off for us immediately, but over time what we're doing will widen the gap between us" and rivals, Mansell said.

Kohl's is well positioned for a push as it's the most profitable department-store chain with the best operating margins in its group, said Bob Drbul, retail analyst at Barclays Capital. "With their conservative way of running the business and strong balance sheet, they are in a position to jump on opportunities," he said.

But Kohl's also faces challenges, Drbul said. "The question becomes are they being disciplined about what they are buying and are they finding the right locations."

So far, Kohl's seems to be on the mark, with the 35 West Coast stores it acquired from liquidating Mervyn's LLC in places where it would be hard to start a store from scratch, Drbul said.

The stores will open under the Kohl's banner in late September, Mansell said.

Regarding further expansion, Kohl's "must adhere to getting the proper returns," Drbul said. "They must hold themselves to a very high level from a store-profitability standpoint."

Kohl's also draws high marks from Michael Exstein, retail analyst at Credit Suisse, although shares are reflecting the company's relative success.

"The only issue holding us back from recommending the stock is its valuation, not management execution or the sustainability of the franchise," Exstein said.

In recent trading, Kohl's shares were up 1%, or 40 cents, at $42.35.

-By Karen Talley, Dow Jones Newswires; 201-938-5106; karen.talley@dowjones.com