Kohl’s Corp (KSS) (Q2 2026) Earnings Call Highlights: Strategic Investments Drive Sequential …

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• Comparable Sales: Declined 0.9% in Q2 2026, with year-to-date comps down 1%.

• Digital Sales: Increased 2.8% in the second quarter.

• Store Sales: Declined 2%, showing sequential improvement.

• Gross Margin: Improved 305 basis points in Q2; excluding tariff refunds, increased approximately 5 basis points.

• SG&A Expense: Declined 0.9% in Q2 and 1.3% year-to-date.

• Net Income: $151 million in Q2, or $1.28 earnings per diluted share; year-to-date net income of $137 million, or $1.18 per diluted share.

• Cash and Cash Equivalents: $821 million at the end of Q2, with no borrowings on the ABL.

• Inventory: Decreased approximately 3% compared to last year.

• Capital Expenditures: $146 million year-to-date; full-year spend expected to be approximately $350 million to $400 million.

• Dividend: Returned $14 million to shareholders in Q2; quarterly cash dividend of $0.125 per share declared.

• Debt Repurchases: Repurchased $113 million of long-term debt year-to-date at a discount of $15 million.

• Share Repurchases: Plans to buy back approximately $100 million in stock in 2026.

• Marketplace GMV: Increased 88% in Q2 and 75% year-to-date.

• Kohl’s Card Sales: Increased 1% in Q2 and 0.6% year-to-date.

• Proprietary Brands Sales: Increased 3% in Q2.

• Home Sales: Grew 1% in Q2, the strongest performance among lines of business.

• Kids Business: Flat in Q2, with Toys delivering double-digit sales growth.

• Women’s Business: Declined 1.5% in Q2, with Juniors up 10%.

• Sephora at Kohl’s Sales: Declined 4% in Q2.

• Accessories Sales: Flat in Q2; excluding Sephora, increased mid-single digits.

• Jewelry Sales: Increased mid-single digits in Q2.

• Footwear: Comp performance accelerated approximately 500 basis points sequentially compared to Q1.

• Other Revenue: Declined 1% in Q2 and 5% year-to-date.

• Interest Expense: $63 million in Q2 and $126 million year-to-date.

• Tax Rate: 23% in Q2.

• FY2026 Guidance: Comp sales expected to be down 1.5% to flat; adjusted operating margin of 3.5% to 4%; adjusted EPS of $1.80 to $2.40.

Release Date: August 26, 2026

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Comparable sales improved sequentially, with digital sales up 2.8% and Kohl’s Card customer sales up 1%.

• Gross margin expanded 305 basis points in Q2, aided by tariff refunds and disciplined inventory management.

• Strong performance in key categories like Home (up 1%), Juniors (up 10%), and Toys (double-digit growth).

• Proprietary brands grew 3%, with increased inventory depth and successful new launches like FLX and SO.

• Balance sheet strengthened significantly, with cash up over $700 million year-over-year and no ABL borrowings.

• Resumed share repurchase program, planning $100 million in buybacks in 2026, and reduced long-term debt to lowest level since 2007.

• Marketplace business grew 88%, expanding assortment and attracting new customers.

• Raised full-year guidance for comp sales, operating margin, and EPS, reflecting confidence in strategic initiatives.

Negative Points

• Comparable sales declined 0.9% in Q2, with both transactions and average transaction value slightly down.

• Sephora at Kohl’s sales fell 4% due to expanded distribution of key brands, with expectations of continued softness.

• Women’s business moderated, down 1.5%, partly due to inventory constraints in proprietary brands.

• Macroeconomic pressures persist, with core low-to-middle income customers facing financial strain from inflation.

• Gross margin excluding tariff refunds increased only 5 basis points, indicating underlying margin pressure.

• Credit revenue declined 1% in Q2 and 5% year-to-date, though improving.

• Inventory levels remain down 3%, potentially limiting ability to meet demand in some categories.

• SG&A expenses declined only 0.9%, with planned investments in media and store payroll expected to keep costs flattish.

Q & A Highlights

Q: Can you provide more color on the improvement in Kohl’s Charge comps and what this means for the trajectory of the business, particularly in proprietary brands and Women’s?A: Jill Timm (CFO): We’re pleased with the rebound of our Kohl’s Charge customer, which reflects their positive reaction to changes in the store, including proprietary brands and the return of key categories like jewelry and petites. This customer never stopped shopping us but went elsewhere for non-substitutable items. As we brought back beloved proprietary brands, they reacted well, with Juniors delivering its third consecutive quarter of double-digit positive comps. Women’s, where the Kohl’s Charge customer over-penetrates (about 70% of women’s apparel), saw higher sell-throughs than anticipated, leaving us inventory constrained. We’ve accelerated fall receipts to address this. The rebound also bodes well for future credit revenue projections.

Q: What was the cadence of comps throughout the quarter, and what gives you confidence in the back-half guidance, which implies an acceleration on a stack basis?A: Jill Timm (CFO): There were calendar shifts in Q2, but we exited July with strong momentum by pulling forward back-to-school receipts, capturing market share. August is showing strength in sweaters, fleece, and denim, with footwear improving 500 basis points sequentially. The back-half guide implies flat to down 2%, similar to the front half. We’re investing in inventory depth, especially in lower-volume stores, which has shown a large sales movement. If initiatives progress as anticipated, we could reach the flat end of the range, building into Q4, which was disappointing last year due to tariff constraints on home decor, boots, and small electricscategories now performing better.

Q: How much sales did the proprietary brand inventory constraints cost you, and what is the trend as you chase into fall receipts?A: Jill Timm (CFO): Proprietary brands were still up 3%, showing consistent positive comps. Women’s was the laggard, with Juniors up 10% but core Women’s impacted by stronger-than-anticipated sell-throughs. We approached the year conservatively on inventory but saw consumers react well. We’ve brought forward fall receipts in sweaters, fleece, and denim, and feel well-positioned for the back half. The step-back in Women’s was mainly a measure of inventory not being in stores.

Q: Can you break down the EPS guide raise, specifically the tariff refund impact and other puts and takes?A: Jill Timm (CFO): The $0.80 raise includes approximately $0.65 from tariff refunds, with credit revenue being the remainder. We’re investing tariff proceeds back into value, expecting fall gross margin to be negative as we remain competitive on pricing. We’re also investing in media and store payroll based on successful tests that lifted sales and customer engagement. SG&A will be flattish to slightly down for the year, with offsets from below-the-line items like D&A and interest to keep EPS whole.

Q: What are your free cash flow expectations for the year, and how should we think about capital allocation between debt repayment and share repurchases?A: Jill Timm (CFO): We expect operating cash flow of $950 million to $1 billion, with CapEx of $350 million to $400 million, putting free cash flow around $600 million, including tariff benefits. We’re resuming share repurchases for the first time since 2022, planning about $100 million in 2026. We’ll be opportunistic on both debt repurchases and share buybacks, not prioritizing one over the other. We expect to end the year with $800 million to $900 million in cash, holding some to address 2030 debt when the non-call period ends in 2027.

Q: How is the consumer profile changing compared to last quarter, and what are your inventory plans for the back half?A: Michael Bender (CEO): The consumer is in a similar place as Q1our core low-to-middle income customer remains financially pressured by essentials like gas and food. We’re leaning into value, convenience, and an inspiring experience. We don’t see sentiment changing much through holiday, so we’re maintaining flexibility to be competitive. Jill Timm (CFO): Inventory was down 3% in Q2, and we plan to run the back half down low single digits to drive productivity. Home is a key opportunity, with small electrics and home decor recovering from last year’s tariff constraints. Jewelry continues to trend well, and we’re expanding fine jewelry cases to 350 additional stores and elevating fashion jewelry fixtures.

Q: Where do you see Sephora trends going in the back half, and can you comment on traffic trends?A: Michael Bender (CEO): Sephora is in a cycle where several major brands have expanded distribution, and new brands haven’t scaled enough to offset the softness. We’re focused on newness, gifting expansion, and holiday outposts in 130 stores. We expect the softer performance to persist until new brands reach full scale. Jill Timm (CFO): Traffic was slightly down in Q2, but it was our best traffic performance in some time, driven by the Kohl’s Charge customer returning with more frequent trips. We feel great about the traffic improvement.

Q: Does the high end of the back-half guidance embed reinvestment if comps turn positive, and how are you thinking about traffic versus ticket?A: Jill Timm (CFO): We’re investing tariff proceeds into price, media, and store payroll because we see a return. If we don’t see that return, we’ll adjust. We expect a promotional market, so we need to be competitive. On traffic versus ticket, ATV was down slightly as customers trade into opening price points and proprietary brands. AUR is coming down, but UPT is up, not enough to fully offset. We expect this to continue in the back half, and we’re driving value through impulse deal bars, toy towers, and thousands of items under $25 for back-to-school.

Q: Are you seeing deflation in core categories from mass competitors, and how are you preparing?A: Jill Timm (CFO): We’re not seeing deflation yet, but we’re prepared. We’ve given ourselves room on margin by using tariffs to invest back into value, so we can react accordingly if deflation occurs. Right now, we’re seeing a shift down in AUR, but we need more units per transaction. Our strategy is

For the complete transcript of the earnings call, please refer to the full earnings call transcript.