Bob Drbull

Bob Drbull asked about the key drivers for the fourth-quarter gross margin outlook, considering adjustments to promotional cadence and coupon exclusions, and the opportunities presented by private brands. He also inquired about Kohl's debt position, plans for rebuilding cash balances, and financial targets for 2026.

Answer

CFO Jill Timm explained that Q3 gross margin improved by 50 basis points due to strong inventory management and a favorable product mix, including proprietary brands and soft home. She noted that Q4 margins are guided softer due to higher digital shipping costs and a highly promotional environment catering to value-seeking customers. Regarding debt, she stated net debt leverage is about 1-2% with $1.5 billion outstanding, having refinanced long-term debt with no maturities for five years. Kohl's expects to fully exit the revolver by year-end, providing $1.5 billion in additional liquidity, and anticipates continued operating cash flow benefits from inventory management into 2026.

Bob Drbull questioned the drivers of Kohl's gross margin outlook for Q4, considering promotional changes and private brand contributions. He also asked about the company's debt position, progress on the revolver, and targets for rebuilding cash balances heading into 2026.

Answer

CFO Jill Timm attributed Q3's 50 basis point gross margin improvement to strong inventory management and favorable product mix, expecting these benefits to continue. She guided Q4 margins softer due to higher digital shipping costs and a highly promotional holiday environment. Regarding debt, she stated $1.5 billion outstanding, a net debt leverage of ~1.2x (excluding leases), and confirmed exiting the revolver by year-end, providing $1.5 billion in additional liquidity. She expressed confidence in the balance sheet and continued operating cash flow generation into 2026.