Kohl's Corp gave a profit forecast that missed Wall Street expectations, citing the cost of adapting to new consumer credit card laws, and expects slower sales growth.

Kohl's, whose sales at stores open at least a year were up 5.9 percent in the first half of the year, forecast a pace of 2 percent to 4 percent sales growth in the second half. Its shares fell 3.6 percent in midday trading.

The department store company said changes to its credit cards terms based on changes in the law and a campaign to communicate those changes to customers could lower income by a combined $40 million in the second half of the year.

In addition, costs to train staff at a fulfillment center for online orders and technology investments will lower the current quarter's results, Chief Financial Officer Wes McDonald said on a call with analysts.

Kohl's lowered its full-year profit forecast to $3.57 to $3.70 per share, below the average Wall Street forecast of $3.76, citing a 10 to 11 percent rise in expenses in this quarter and a 3 to 4 percent rise in the fourth quarter.

It expects earnings of 57 cents to 63 cents per share in the third quarter, below the average forecast of 74 cents.

The landscape hasn't changed -- and you can make the case that perhaps it has worsened, Mansell told Reuters, explaining Kohl's cautious sales outlook for the rest of the year. Better that we be conservative and then exceed forecasts.

Net income rose 13.5 percent to $260 million, or 84 cents per share, on a 7.7 percent rise in sales to $4.1 billion. Profit and revenue beat analyst expectations.

Same-store sales, or sales at stores open at least a year, rose 4.6 percent. The chain saw more transactions per store, though shoppers bought less per visit.

Kohl's shares fell $1.73 to $46.05, while shares in rival J.C. Penney , which reports its results on Friday, were down too. Macy's and Dillard's shares also fell.

MARKET SHARE GAINS

Kohl's has outperformed Penney and Dillard's in terms of same-store sales growth and lured cost-conscious shoppers through an array of exclusive merchandise.

Exclusive and private label brands now make up nearly half of sales and include and Simply Vera Wang, whose sales rose more than 30 percent during the second quarter, and Candie's.

Some industry watchers looked favorably on Kohl's higher investment in its business, even if that hits earnings in the short-term, since a weak economy makes it harder for retailers to win customers.

That's a good thing; they're playing offense, said Walter Stackow, an analyst at Manning & Napier, which owns Kohl's shares.

Mansell said on the call that appropriate inventory levels helped margins, which edged up to 40.3 percent. The company expects further improvement in the third and fourth quarters.

Additionally, Kohl's signed up Capital One to issue its private label credit cards. The retailer gets a cut of the fees and interest charged to shoppers who use the cards.

Kohl's seven-year deal with Capital One replaces one with Chase Bank USA, part of JP Morgan Chase , and covers about 20 million accounts. It will largely function in the same way, with Kohl's handling customer service and advertising.

(Reporting by Phil Wahba; Editing by Derek Caney, John Wallace and Robert MacMillan)

Fall