Unlike a number of other retail and vendor brands that found business momentum fading away after a crisis of character and confidence at the top of an organization, Kohl’s Corporation’s former Board Chair and current Interim CEO Michael Bender and his team may have been able to turn the tide in the 2025 second quarter – at least for now.

Welcome news of a second quarter beat on earnings and comp sales sent KSS shares up nearly 24 percent on Wednesday, August 27 after management said they found a formula combining cost cutting and lower inventories to clean up the bottom line. The beat was even more surprising to many as Bloomberg published a report on Tuesday afternoon that indicated Kohl’s has been late paying some vendors, a story timed before the Tuesday market close, sending KSS shares lower to close the day.

But that did trend did not last long, thanks to a well delivered overview of what is working and what is next.

“We’re pleased with our results as we delivered comparable sales of down 4.2 percent and adjusted earnings per diluted share of 56 cents, both of which were ahead of our expectations,” Bender noted on a conference call with analysts on Wednesday morning. Now while it’s clear that these efforts are beginning to resonate with our customers, we also recognize that this performance is not yet where we aim to be. Our entire team remains focused on enhancing the way we serve customers and over time, returning the company to growth.

Bender said they saw sales progressively improve throughout the quarter, with May having the softest performance due in part to colder, wetter weather over the last couple of weeks of the month, including the Memorial Day holiday, which negatively affected the spring seasonal businesses.

“We saw improvement in June and ended the quarter strong with July comp sales flat to last year. The improved performance was driven by our digital business and our proprietary brand sales, both of which performed positively in July,” the CEO added.

Company CFO Jill Timm reported that total company net sales declined 5.1 percent to $3.3 billion in the quarter and down 4.6 percent year-to-date (YTD). Comparable sales decreased 4.2 percent in the second quarter and were down 4 percent YTD.

The decline in Q2 sales was said to be primarily driven by fewer transactions, specifically in the Store channel. However, she did say that Kohl’s saw traffic improve in both channels (Stores and Digital) throughout the quarter with positive traffic in July, helping deliver a flat sales performance to end the quarter.

Digital channel sales outpaced Store channel sales during the quarter, reportedly driven by strong conversion rates.

“The performance of our Digital business was further enhanced by the inclusion of additional brands in our coupon offerings, which resonated well with customers and contributed to improved results,” Timm shared.

“We continue to see strong performance from new and non-Kohl’s Card customers, delivering another quarter of positive sales growth. In contrast, our Kohl’s Card customer segment continued to underperform with sales down in the low teens for the quarter. As Michael outlined, several of our strategic initiatives are specifically focused on regaining share and reengaging our Kohl’s Card customer base.

Other revenue, which is primarily the retailer’s credit business, was $199 million in Q2, a 4 percent decrease versus last year’s second quarter. The decrease was said to be primarily driven by a portion of credit expenses shifting against other revenue as part of the company’s account servicing to the third party that owns the accounts. Year-to-date, other revenue declined 7 percent.

Key Category Initiatives
In outlining one of the company’s top initiatives, Bender said Kohl’s is focused on offering a curated and more balanced assortment that fulfills the needs across all of the store’s customers. He said in recent years, Kohl’s focused too heavily on altering its merchandising assortment in order to attract a new customer.

“This overemphasis led to unintentional displacement of products and categories that were important to our most loyal customers,” he admitted. “We know our customers come to Kohl’s with an expectation that we will deliver the products they need for themselves, their families and their home. We’re working to rebalance our full product assortment across key categories. A more curated, balanced assortment will ensure a more consistent and inspirational shopping experience every time.”

It appears this realization came in time to avert a Cracker Barrel scenario by focusing on people that you want and not the people you already have.

Bender said the Women’s business is a very important category for Kohl’s as it serves the retailer’s core customer and is a key driver of overall company performance.

“During the second quarter, we started seeing progress in our Women’s business as we invested back into proprietary brands, streamlined the choices in intimates and reintroduced the petites category,” he summarized. “Our Women’s business over-penetrates in our proprietary brands and as we’ve reinvested in these brands, the Women’s business has benefited.”

Still, the Women’s business “slightly lagged” the overall company performance, but Bender said they saw steady improvement as the inventory investment in proprietary brands gained traction, ultimately delivering a positive comp in July.

“The strength was driven by key brands like Sonoma, Lauren Conrad and FLX,” he said.

Next, in the Intimates category, he said Kohl’s reduced the choice count and improved in-stocks enhancing shopability and delivering greater clarity for customers.

“As these changes took effect, we began to see meaningful improvement in the business, culminating in a flat comp performance in July,” he noted.

Lastly, he said they reestablished the Petites category in all stores. He said the business accelerated throughout Q2 and was up almost 40 percent in the quarter. Bender said the strong performance was led by the introduction of Kohl’s proprietary brands, Lauren Conrad and Simply Vera Vera Wang.

“We are extremely encouraged by these results as this category provides an incremental sale because it is not a substitutable category and over-penetrates with our core and most loyal customer,” he added.

He also added that the Accessories business continued to outperform the company by low single digits in the quarter, suggesting that the strength was driven by reestablishing the jewelry business and investing in key growth categories such as Impulse and the Sephora partnership.

Unfortunately, the Men’s and Kids’ businesses were said to be the softest performing categories in the quarter with both experiencing declines in spring seasonal assortments like shorts and tees. However, this softness was partially offset by stronger performance in opening price-point proprietary brands such as Tek Gear and Jumping Beans.

Bender said the Footwear business “slightly underperformed” the company, primarily due to softness in sandals and active footwear. This under-performance was said to be partially offset by strength in dress casual styles and solid performance in the Kids’ footwear business.

Profitability and Expenses
In addition to the better-than-expected top-line performance, Interim CEO Bender said the company continues to operate the business with discipline.

“We were able to expand our gross margin by approximately 30 basis points, lower our inventory by 5 percent and reduce our SG&A expenses by 4 percent in the quarter,” he said. “Although we are encouraged by our second quarter results and the improved sales trend we saw throughout the quarter, we also recognize that consumers continue to be pressured and are being ‘choiceful’ with their purchases.”

Specifically, he acknowledged the retailer’s lower- to middle-income customers that remain the most challenged, while its higher income customers have proven to be more resilient.

“These lower- to middle-income customers continue to prioritize value and are trading down into lower opening price-point products,” The CEO shared. “Several of our key initiatives are focused on delivering greater value to these customers through investing in our proprietary brands and adding more coupon eligible brands.”

Gross margin in Q2 was 39.9 percent of net sales, an increase of 28 basis points year-over-year (y/y). The increase was reportedly driven by category mix benefits, outperformance of proprietary brands and continued strong inventory management. Year-to-date, gross margin was 39.9 percent of net sales, an increase of 33 basis points y/y.

SG&A expenses decreased 4.1 percent y/y to $1.2 billion in q2, reportedly benefiting from lower spending in stores, marketing, as well as the benefit of a portion of the credit expenses shifting into other revenue. Year-to-date, SG&A expenses decreased 5 percent compared to YTD last year.

Depreciation expense was $175 million in the quarter, a decrease of $13 million versus Q2 last year. The decrease was reportedly driven by lower capital expenditures and the impact from closed locations. Year-to-date, depreciation expense was $350 million, down $26 million to the prior-year second quarter.

Interest expense in Q2 was $78 million, decreasing $8 million y/y, said to be primarily due to lower lease interest expense from store closures. Year-to-date, interest expense decreased $15 million to $154 million.

The company’s Adjusted tax rate was 23 percent in Q2 and 27 percent year-to-date.

Timm said this resulted in $64 million in Adjusted net income for the quarter, or Adjusted earnings per diluted share of 56 cents. Year-to-date, Adjusted net income was $50 million and Adjusted diluted EPS amounted to 44 cents.

In addition, Timm said the company benefited during the quarter from the settlement of a credit card interchange fee lawsuit, resulting in a one-time pretax gain of $129 million and diluted earnings per share of 87 cents that was excluded from the numbers previously discussed.

Balance Sheet and Cash Flow
Kohl’s Corporation ended the quarter with $174 million of cash and cash equivalents.

Inventory at quarter-end declined 5 percent y/y compared to the end of quarter last year, said to reflect a continued focus on disciplined inventory management, with receipts managed down in the mid-teens.

“Looking ahead, we expect to end the year with inventory levels down in the mid-single digits,” Timm noted.

Year-to-date, Timm said operating cash flow was $506 million, while year-to-date Adjusted free cash flow was $270 million.

“This cash flow generation allowed us to reduce our outstanding balance on the revolver by $470 million from Q1, ending the second quarter with $75 million borrowed,” she said, noting that they continue to expect to be fully out of the revolver by the end of the year.

In addition to reducing the balance on the revolver, Kohl’s was able to further solidify its balance sheet by completing the refinance of its July 2025 maturities by issuing a new private offering for $360 million of 10 percent senior secured notes due in 2030.

“Kohl’s nearest debt maturity is not due until 2029, and our long-term debt remains at a 10-year low. Capital expenditures year-to-date were $200 million,” Timm noted.

CapEx is forecast at ~$400 million this year related to the completion of the Sephora rollout, the Impulse Q line rollout to 613 stores and the expansion of one of the retailer’s “next-generation” e-commerce fulfillment centers.

“In Q2, we returned $14 million to shareholders through the dividend, and as previously disclosed, the Board on August 12 declared a quarterly cash dividend of $0.125 per share payable to shareholders on September 24.

Outlook
“As you’ve heard this morning, we’ve taken a number of actions to strengthen our business,” Timm said, regarding a look ahead. “These initiatives are beginning to show early signs of positive impact, reinforcing the momentum we’ve already started to build and positioning us for continued progress.”

However, she added that Kohl’s continues to navigate macroeconomic uncertainty, including “challenges related to global trade policy and the difficulty of forecasting its impact on consumer behavior.”

Additionally, she said that the core Kohl’s customer remains under pressure, becoming increasingly selective with their spending.

As a result, Kohl’s is taking a prudent approach to its financial outlook for the remainder of the year.

“Based on what we know today and our ongoing mitigation efforts, we believe we are well positioned to achieve the following full year financial guidance,” Timm presented.

  • Net sales decline of 5 percent to 6 percent compared to our previous guidance of down 5 percent to 7 percent;
  • Comparable sales decline of down 4 percent to 5 percent from down 4 percent to 6 percent;
  • Other revenue down 13 percent to 14 percent;
  • Gross margin expansion of approximately 30 basis points – the low end of our previous guidance of 30 to 50 basis point increase;
  • An SG&A decline of down 4.0 percent to down 4.5 percent from down 3.5 percent to 5 percent previously;
  • Depreciation of $705 million, down from $730 million;
  • Interest expense of $305 million, down from $315 million;
  • Adjusted operating profit of 2.5 percent to 2.7 percent of net sales, up from 2.2 percent to 2.6 percent previously; and
  • Adjusted EPS of 50 cents to 80 cents per diluted share, up from 10 cents to 60 cents per diluted share previously.

That’s a win.

Image courtesy Kohl’s