(Reuters) -Kohl's raised its annual profit forecast after beating estimates for second-quarter earnings, as a tight leash on costs and leaner inventories helped overshadow muted demand for apparel and accessories at the U.S. department stores operator.

The company's shares were up 4% in premarket trading on Wednesday. They have fallen nearly 32% so far this year as retailers grappled with uneven demand amid sticky inflation and higher-for-longer interest rates.

Clearance events towards the start of the year helped Kohl's offer fresher styles in categories such as footwear, baby products and women's dresses heading into the key spring shopping season in the U.S.

Inventory in the second quarter declined 9%, after falling 13% in the preceding quarter.

Kohl's now expects diluted earnings per share in the range of $1.75 to $2.25 for the full year, compared with its prior forecast of $1.25 to $1.85.

Excluding items, the company earned 59 cents per share in the second quarter, compared with expectations of 45 cents.

"During the second quarter, our customers exhibited more discretion in their spending, which pressured our sales even as customers transacted more frequently," CEO Tom Kingsbury said in a statement.

Peer Nordstrom on Tuesday topped expectations for quarterly profit. Its shares were up about 4% before the bell.

Kohl's has also benefited from robust demand at beauty retailer Sephora as customers continued to shop for affordable cosmetics and skin-care products.

The department store operator is also refreshing its in-store offerings of women's apparel, including dresses and casual wear in order to drive more sales.

Still, the company lowered its annual net sales target after posting a bigger-than-expected drop in comparable sales in the second quarter.

The company's comparable sales fell 5.1%, while analysts had expected a 2.19% drop, as per LSEG data.

It now expects annual net sales to decline between 4% and 6%, compared with its prior forecast of a drop of between 2% and 4%.

(Reporting by Juveria Tabassum; Editing by Sriraj Kalluvila)