Executive Summary

Q2 results were ahead of plan: comparable sales -4.2% with July comps flat, gross margin expanded to 39.9% (+28 bps YoY), and adjusted EPS of $0.56; GAAP EPS was $1.35 due to a $129M interchange-fee settlement gain .
Results beat Wall Street consensus: Revenue $3.546B vs $3.369B estimate; EPS $0.56 vs $0.30; EBITDA $0.336B vs $0.307B; Q1 also beat on revenue and EPS, indicating early execution benefits from proprietary brand rebalancing and coupon eligibility expansion * [functions.GetEstimates]*.
FY25 outlook improved: raised adjusted EPS to $0.50–$0.80 (from $0.10–$0.60), raised adjusted operating margin to 2.5%–2.7% (from 2.2%–2.6%), narrowed sales declines, lowered interest and depreciation; gross margin targeted to low end of prior range amid tariff uncertainty .
Operating discipline continued: inventory down 5%, SG&A down 4.1%, operating cash flow YTD $506M; revolver reduced to $75M with 2025 debt refinanced via $360M 10% secured notes due 2030; quarterly dividend declared at $0.125 .

What Went Well and What Went Wrong

What Went Well

Proprietary brands and value strategy gained traction; women’s proprietary brands and petites drove improvement, with petites up ~40% and July women’s comp positive; jewelry grew +12% and accessories outperformed .
Impulse queue lines and Sephora contributed: impulse sales +30% with rollout in 300+ stores; Sephora grew +3% YoY and continues to draw younger customers, supporting cross-shopping in juniors and women’s .
Cost control and margin: gross margin +28 bps YoY on mix and proprietary penetration; SG&A -4.1%; adjusted operating profit and EPS guidance raised, reflecting confidence despite macro headwinds .

Quotes:

“We were able to expand our gross margin by approximately 30 basis points, lower our inventory by 5% and reduce our SG&A expenses by 4% in the quarter.” — Interim CEO Michael Bender .
“For every 100 bps of penetration we gain in proprietary brands, it’s 10–15 bps of improvement to gross margin.” — CFO Jill Timm .

What Went Wrong

Traffic and core credit customer pressure: store transactions lagged; Kohl’s card sales down low teens; lower/middle-income customers remain challenged, trading down to opening price points .
Category softness: men’s and kids underperformed; footwear lagged on sandals/active; small electrics soft; digital underperformed earlier in the year (though improving with more coupon-eligible brands) .
Tariff uncertainty: gross margin outlook guided to low end given pricing competitiveness in holiday and tariff impacts; other revenue outlook reduced on co-brand lap and AR balances .

Financial Results

Quarterly profile (oldest → newest)

Metric	Q4 2025	Q1 2026	Q2 2026
Total Revenue ($USD Billions)	$5.397	$3.233	$3.546
Net Sales ($USD Billions)	$5.175	$3.049	$3.347
Gross Margin (%)	32.9%	39.9%	39.9%
SG&A ($USD Billions)	$1.539	$1.164	$1.199
Operating Income (GAAP, $USD Billions)	$0.126	$0.060	$0.279
Adjusted Operating Income ($USD Billions)	$0.126→$0.106 (adj)	n/a	$0.161
Diluted EPS (GAAP)	$0.43	($0.13)	$1.35
Adjusted Diluted EPS	$0.95	n/a	$0.56
Comparable Sales (%)	-6.7%	-3.9%	-4.2%
Inventory ($USD Billions)	$2.945	$3.137	$2.994

Notes: Adjusted figures reflect non-GAAP reconciliations disclosed by the company .

Year-over-Year (Q2 2026 vs Q2 2025)

Metric	Q2 2025	Q2 2026
Net Sales ($USD Billions)	$3.525	$3.347
Total Revenue ($USD Billions)	$3.732	$3.546
Gross Margin (%)	39.6%	39.9%
SG&A ($USD Billions)	$1.250	$1.199
Operating Income (GAAP, $USD Billions)	$0.166	$0.279
Diluted EPS (GAAP)	$0.59	$1.35
Adjusted Diluted EPS	$0.59	$0.56

Drivers: Interchange settlement gain of $129M boosted GAAP EPS; underlying adjusted EPS declined slightly YoY on sales pressure, offset by mix and SG&A improvements .

KPIs and operating details

KPI	Q2 2026 Value / Commentary
Other Revenue	$199M (credit revenue, -4% YoY due to servicing shift)
Digital vs Stores	Digital outpaced stores with strong conversion; coupon eligibility change helped digital
Jewelry Sales Growth	+12% YoY (fashion jewelry strength; fine jewelry tests in ~200 stores)
Petites	~+40% YoY in Q2; strong response to Lauren Conrad & Simply Vera
Impulse Sales	+30% YoY; queue lines implemented in 300+ stores, rollout finishing by Q3
Sephora at Kohl’s	+3% YoY; comps flat; beauty business targeting $2B
Revolver Balance	$75M at quarter-end (reduced by $470M from Q1)
Operating Cash Flow (YTD)	$506M; Adjusted FCF ~$270M YTD

Guidance Changes

Metric	Period	Previous Guidance (Q1)	Current Guidance (Q2)	Change
Net Sales	FY 2025	(5%) to (7%)	(5%) to (6%)	Narrowed improvement
Comparable Sales	FY 2025	(4%) to (6%)	(4%) to (5%)	Narrowed improvement
Other Revenue	FY 2025	Down ~12%	Down 13%–14%	Lowered
Gross Margin Expansion	FY 2025	+30–50 bps	~+30 bps (low end)	Lowered to low end
SG&A	FY 2025	Down 3.5%–5%	Down 4%–4.5%	Tightened
Depreciation	FY 2025	~$730M	~$705M	Lowered
Interest Expense	FY 2025	~$315M	~$305M	Lowered
Adjusted Operating Margin	FY 2025	2.2%–2.6%	2.5%–2.7%	Raised
Adjusted Diluted EPS	FY 2025	$0.10–$0.60	$0.50–$0.80	Raised
Capex	FY 2025	$400M–$425M	~$400M	Maintained (lower end)
Dividend	FY 2025	$0.125/qtr	$0.125/qtr (declared Aug 12)	Maintained

Rationale: Tariff and competitive pricing risks temper gross margin, while proprietary mix, inventory discipline, and cost controls support higher operating margin and EPS .

Earnings Call Themes & Trends

Topic	Q4 2025 (Prev)	Q1 2026 (Prev)	Q2 2026 (Current)	Trend
Proprietary brands	Identified as core to value; plan to elevate private label like Sonoma, FLX	Sequential improvement from investment; still underperform vs company	500 bps improvement vs Q1; women’s and kids opening price points emphasized	Positive momentum
Coupon eligibility	Too many exclusions causing friction; intent to reverse certain exclusions	Phase 1 in late April; more brand inclusions by mid-Aug for BTS/holiday	Second wave added ~50 brands; 800+ bps increase in coupon-eligible penetration in Q2	Expanding reach
Sephora	Strong Q4 comps +13%; rollout completing	+6% net sales, +1% comps; final rollout with 105 small shops	+3% YoY; beauty business target $2B; cross-shopping into juniors/women	Sustained contributor
Store layout & trip assurance	Adjacency optimization; focus on basics/essentials	Accessory pad near Sephora; juniors moved; improve in-stocks	Dedicated accessories pad, active relocated; improved intimates in-stocks	Execution underway
Tariffs & sourcing	Diversified supply chain; vigilant on macro volatility	Mitigation via country shifts, elasticity-based buys; margin guide balanced	Margin at low end; monitor holiday pricing competitiveness	Ongoing risk
Digital channel	Underperformed in Q4; conversion issues fixed	-7.7% sales; improving with coupons and fixes; profitability lower than stores	Digital outpaced stores; coupon transparency drove conversion	Improving

Management Commentary

“Customers are continuing to be choiceful with their discretionary income… we are working relentlessly to meet their needs by providing quality products at a great value.” — Michael Bender .
“Our outlook… assumes the macroeconomic environment will remain challenged. However, our strong operating discipline and improved cash flow generation will continue to provide meaningful support to drive progress.” — Michael Bender .
“Digital sales outpaced store sales during the quarter, driven by strong conversion rates… inclusion of additional brands in our coupon offerings resonated well with customers.” — Jill Timm .
“Adjusted diluted EPS of $0.50 to $0.80… up from $0.10 to $0.60.” — Jill Timm on FY25 guidance raise .

Q&A Highlights

Top-line drivers: Proprietary brand investments and expanded coupon eligibility are primary levers; sequential improvement expected in back half as inventories flow into women’s and value price points .
Tariffs and margin: Margin guided to low end to preserve price competitiveness; proprietary mix and inventory turns offset tariff pressure; margin cadence balanced between Q3 and Q4 .
Customer and comps cadence: Traffic is the key driver; initiatives to regain trips in non-substitutable categories (jewelry, petites) and value messaging; comps expected similar cadence in H2 .
Credit revenue: Co-brand lap and lower revolving balances weigh on other revenue; guidance reflects step-down in H2 .
Back-to-school read: August off to a good start; strength in backpacks, kids’ footwear, fleece, women’s denim, Levi’s and Nike .

Estimates Context

Beat vs consensus (S&P Global): Q2 EPS $0.56 vs $0.30 est; revenue $3.546B vs $3.369B est; EBITDA $0.336B vs $0.307B est. Q1 EPS -$0.13 vs -$0.22 est; revenue $3.233B vs $3.062B est; EBITDA $0.235B vs $0.222B est [functions.GetEstimates]*.
FY26 consensus (illustrative for trajectory): EPS $0.745; revenue $14.83B; EBITDA $1.12B [functions.GetEstimates]*.

Table — Actual vs Estimates (oldest → newest)

Period	EPS ($)	Revenue ($USD Billions)	EBITDA ($USD Billions)
Q1 2026	Actual: -0.13 ; Est: -0.223*	Actual: $3.233 ; Est: $3.062*	Actual: $0.235; Est: $0.222
Q2 2026	Actual: 0.56 ; Est: 0.297*	Actual: $3.546 ; Est: $3.369*	Actual: $0.336; Est: $0.307

Values with asterisk retrieved from S&P Global.

Key Takeaways for Investors

Execution momentum: Two consecutive beats vs consensus driven by proprietary brand rebalancing, coupon inclusion, and operating discipline; raised FY EPS and margin guidance is a positive catalyst * [functions.GetEstimates]* .
Mix tailwind vs tariff headwind: Proprietary penetration boosts margin (10–15 bps per 100 bps of mix), but guidance prudently sets margin at low end to price competitively through holiday amid tariff uncertainty .
Category strategy is working: Non-substitutable categories (jewelry, petites) and impulse are adding trips/units; watch for continued women’s recovery and broadening value assortment in H2 .
Balance sheet/liquidity improving: Revolver nearly cleared; 2025 maturities refinanced; inventory down 5%; YTD operating cash flow strong; supports investment and resilience .
Digital conversion lever: Coupon transparency and brand inclusions materially help digital; expect continued improvement as signage/training enhance in-store coupon awareness .
Risk monitoring: Middle/lower-income customer remains pressured; credit revenue expected to downtick in H2; tariffs and promotional intensity may cap margin upside .
Dividend continuity: $0.125 quarterly dividend maintained; capital allocation prioritizes debt reduction and flexibility while advancing Sephora and impulse rollouts .

Appendix — Additional Data

Notable items and adjustments

Legal settlement: One-time pre-tax gain $129M from interchange-fee lawsuit; excluded from adjusted EPS (GAAP diluted EPS +$1.14 contribution), adjusted EPS $0.56 .
Store actions: 27 store and 1 e-commerce fulfillment center closure announced in Q4’24, with $76M charges; part of SG&A optimization trajectory .

Dividend and capital markets updates

Dividend declared: $0.125 per share, payable Sep 24, 2025 .
Note issuance: $360M of 10% senior secured notes due 2030; nearest maturity 2029; long-term debt at 10-year low post actions .