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Kohl's Corp.'s (KSS) second-quarter earnings fell, surprising Wall Street after the retailer last month raised expectations for a strong performance by posting its best same-store-sales in more than a year.

Kohl's was able to boost margins, showing it has a good handle on inventory, and also raised its profit target for the year to $2.59 a share to $2.70 from May's boosted view of $2.19 a share to $2.42. But it projected earnings for the current quarter below analysts' expectations.

Kohl's expects fiscal third-quarter earnings of 40 cents a share to 44 cents on flat sales, plus or minus 1%, and same-store sales down 3% to 5%. Analysts polled by Thomson Reuters are looking for earnings of 47 cents a share and total sales up 1% to $3.85 billion. The outlook continues the very conservative view retailers are taking for the back end of this year.

Kohl's has been among better-performing department stores, benefiting from its exclusive brand offerings and contraction in its channel.

Shares were recently down 1% to $51.73 in premarket trading.

President and Chief Executive Kevin Mansell said in May the difficult economy was helping the company gain market share from competitors, but warned the effects of the recession could still be felt. He reiterated Thursday that results indicated market-share gains and said the company continues to improve inventory management and margins.

For the period ended Aug. 1, Kohl's posted income of $229 million, or 75 cents a share, down from $236 million, or 77 cents a share, a year earlier. Kohl's said net sales increased 2.2% to $3.81 billion as same-store sales fell 2.3%.

Gross margin rose to 40% from 39.6%.

Kohl's has grown in recent years in part by offering exclusive lines from designers, such as Vera Wang, as well as low-cost products. It also acquired some of the now-defunct Mervyn's stores after Mervyn's went into bankruptcy last summer. As of Aug. 1, Kohl's operated 1,022 stores in 49 states, up 6.8% from a year earlier. The company plans to open another 37 stores later this year.

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

(Kerry Grace Benn and Kevin Kingsbury contributed to this article.)