Mid-tier department store chain Kohl's Corp reported a 23 percent drop in first-quarter profit as its gross margin was hit by price cuts designed to lure back shoppers.

Kohl's department store / Photo: Caldorwards4

The retailer, which competes most directly with Macy's and J.C. Penney Co Inc, also forecast another quarter of tepid sales growth, projecting same-store sales would be flat to up 1 percent in the current quarter. That would follow a 0.2 percent rise in the first quarter.

Kohl's, which struggled during the holiday season after pricing too aggressively for its price-sensitive clientele, ended up lowering prices this spring.

That led to "significantly lower gross margins," Chief Executive Kevin Mansell said in a statement.

Gross margin, which gauges how profitable sales are, fell 2.2 percentage points to 35.9 percent of sales.

Kohl's, which operates 1,134 stores, projected second-quarter earnings of 96 cents to $1.02 per share, below the $1.13 Wall Street analysts had been expecting, according to Thomson Reuters I/B/E/S.

The retailer left unchanged its forecast for earnings of $4.75 per share for the full year ending in January 2013.

Kohl's posted first-quarter profit of $154 million, or 63 cents per share, down from $201 million, or 69 cents per share, a year earlier.

That was 2 cents better than analysts expected, thanks to cost-cutting.

Kohl's was unable to capitalize on the opening Penney left when it started in February to implement a new pricing strategy that largely gets rid of sales events. Analysts have said such changes will hurt Penney, at least initially.