Kohl's Q1 2026 Earnings Call Transcript

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May 29, 2025
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Operator

Good morning. My name is Audra, and I will be your conference operator today. At this time, I would like to welcome everyone to the First Quarter twenty twenty five Kohl's Corporation Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Trevor Novotny, Senior Manager of Investor Relations. Please go ahead.

Trevor Novotny
Senior Finance Manager, Investor Relations at Kohl’s

Thank you. Certain statements made on this call, including projected financial results and the company's future initiatives, are forward looking statements. Such statements are subject to certain risks and uncertainties, which could cause Kohl's actual results to differ materially from those projected in such forward looking statements. Such risks and uncertainties include, but are not limited to, those that are described in Item 1A in Kohl's most recent annual report on Form 10 ks and as may be supplemented from time to time in Kohl's other filings with the SEC, all of which are expressly incorporated herein by reference. Forward looking statements relate to the date initially made, and Kohl's undertakes no obligation to update them.

Trevor Novotny
Senior Finance Manager, Investor Relations at Kohl’s

In addition, during this call, we may make reference to non GAAP financial measures. Please refer to the cautionary statement regarding non GAAP measures and reconciliation of these measures included in the investor presentation filed as an exhibit to our Form eight ks as filed with the SEC and available on our Investor Relations website. Please note that this call will be recorded. However, replays of this call will not be updated. So if you are listening to a replay of this call, it is possible that the information discussed is no longer current, and Kohl's undertakes no obligation to update such information.

Trevor Novotny
Senior Finance Manager, Investor Relations at Kohl’s

With me this morning are Michael Bender, our Interim Chief Executive Officer and Jill Timm, our Chief Financial Officer. I will now turn the call over to Michael.

Michael Bender
Interim CEO at Kohl’s

Thank you, Trevor, and good morning, everyone. Thank you for joining Kohl's first quarter conference call. I'm honored to assume the role of interim chief executive officer at such an important time for our company. Kohl's has a substantial opportunity to better serve our customers every day, build long term financial health and deliver shareholder value. While I'm no stranger to Kohl's, having served as a board member since 2019, I'm also very familiar with the consumer retail industry.

Michael Bender
Interim CEO at Kohl’s

I have over thirty years of experience in the industry holding leadership positions at Walmart, L Brands, PepsiCo, and most recently, I served as CEO of iMart Express. I'm excited to leverage my Kohl's board and past leadership experience to lead and support Kohl's through this CEO transition. I do want to recognize that there has been a lot of change for Kohl's this past year, especially the last few weeks. While change can be difficult, it also represents an opportunity to reassess and commit to a path forward. The good news is we already have that plan in place for 2025, and we're making good progress against this plan.

Michael Bender
Interim CEO at Kohl’s

Our plans, which are centered on customer priorities, have us working more collaboratively across the business, staying more accountable for incremental progress, and communicating more transparently to effectively drive the work. As we navigate through this period of change, we're committed to moving forward and showing up for our customers each day. It has been a busy few weeks, and I've enjoyed the opportunity to dive into our business. After visiting several stores and engaging in meaningful conversations with key partners, vendors, and investors, I'm more energized than ever about the road ahead. Seeing firsthand the dedication of our teams, the strength of our operational network, and the passion of our partners has only deepened my confidence in the incredible potential of this business.

Michael Bender
Interim CEO at Kohl’s

The insights gained from these interactions have reinforced the scale of the opportunity before us and the impact we can make by working together with focus, innovation, and a relentless commitment to excellence and execution. Last quarter, we identified key priorities focused on the Kohl's customer, which Jill will speak to shortly. These areas of focus are all designed with the customer in mind and will help us provide the products and shopping experience we know our customers want from Kohl's. Our work is underway and we have cross functional teams that are working with urgency and care to deliver on these actions. Our first quarter performance was ahead of our expectations and the actions we're taking are making progress with early signs of positive impact.

Michael Bender
Interim CEO at Kohl’s

Kohl's has a strong foundation of 1,100 conveniently located stores and over 60,000,000 customers, including a strong loyal customer base that continues to grow. We have a tremendous opportunity to build on this foundation, and I'm truly excited to lead this next chapter and build on the momentum we've already begun to generate. Lastly, I would like to give a heartfelt thanks to our Kohl's team. I greatly appreciate all your hard work, dedication and commitment to Kohl's, and I look forward to working closely with you to lead Kohl's to a successful future. I'll now hand the call over to Jill to speak to our first quarter performance and give an update on the progress we're making against our 2025 actions.

Jill Timm
Chief Financial Officer at Kohl’s

Thank you, Michael, and good morning, everyone. Our first quarter results came in ahead of our expectations. And while we are in the early stages of our initiatives, it is clear that the actions we are taking are beginning to resonate with our customers, and we are starting to build momentum in key areas. However, I want to level set that this is a turnaround and will continue to take time, much of the work remains ahead of us. Progress starts with the actions we are taking in 2025 to address opportunities and better serve our customers.

Jill Timm
Chief Financial Officer at Kohl’s

These efforts are centered on three key areas of focus. First, offer a curated, more balanced assortment that fulfills needs across all customers. Second, reestablish Kohl's as a leader in value and quality. And third, deliver a frictionless shopping experience. Let me begin with our first area of focus, offering a curated, more balanced assortment that fulfills needs across all customers with a goal to drive improved assortment clarity and a purpose behind each brand.

Jill Timm
Chief Financial Officer at Kohl’s

Our focus over the last couple years has been heavily weighted on new products to attract new customers, and we have deemphasized products and categories that are important to our loyal customers. 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 are working to rebalance our full product assortment across all categories. A more more curated balanced assortment will ensure a more consistent and inspirational shopping experience every time. The most notable area we are correcting is our jewelry business, which we displaced as we rolled out Sephora in our stores.

Jill Timm
Chief Financial Officer at Kohl’s

This was a category that was highly penetrated by our most loyal Kohl's card customers. In fall, we reintroduced jewelry and rolled out 200 fine jewelry shops in select Kohl's stores. In Q1, we saw a strong response to our jewelry business with jewelry sales up 10% in the quarter driven mainly by our Kohl's card customer. We see more opportunity with this category as we continue to work through assortment and staffing of our fine jewelry business. In women's, we over assorted new brands over the last couple of years, which led to women's underperforming the business.

Jill Timm
Chief Financial Officer at Kohl’s

We are working diligently to find the right balance within our apparel assortment, and we believe rebalancing the assortment will better deliver to our customer expectations and improve the category performance. As we move forward, women's is focused on delivering more depth and essentials, improving assortment clarity in sportswear, and making significant choice reduction as it divests from the market brands and invests into proprietary brands. We also completed the rollout of our petites business to all stores at the end of last year. The petites business also had solid performance in Q1, up high teens driven by the introduction of Simply Vera Vera Wang and Lauren Conrad with an outsized performance in stores and positive performance from both our core and new customers. In addition, we will continue to invest in key growth categories, specifically Sephora and Impulse.

Jill Timm
Chief Financial Officer at Kohl’s

This spring, we will open 105 Sephora small format shops, which completes the full chain rollout of Sephora at Kohl's. Sephora has been a huge success for Kohl's, and in just four years, we successfully launched over 1,100 Sephora at Kohl's shops and built nearly a $2,000,000,000 beauty business. In Q1, Sephora delivered another quarter of positive sales with net sales up 6% and comparable sales up 1%. In Q1, we made the decision to expedite the rollout of the impulse queue lines in 2025 to an additional six thirteen stores, resulting in an impulse queue line in nearly all of our stores by Q3. The impulse business has been a great success, specifically in stores, as it is highly incremental and drives additional units in the basket.

Jill Timm
Chief Financial Officer at Kohl’s

Moving to our next area of focus, reestablishing Kohl's as a leader in value and quality. Our goal is to offer great products at a great price and enhance our promotions to deliver more value to our customers. This work begins with elevating our proprietary brands, which offer lower price points on quality products and give customers an exclusive reason to shop at Kohl's. Proprietary brands play an instrumental role in our value proposition and highly resonate with our core loyal customers. We believe there's a substantial opportunity for us to lean into our value oriented proprietary brands to offer more relevance, value, and quality to our customers.

Jill Timm
Chief Financial Officer at Kohl’s

As we've begun to invest back in our proprietary brands, we have seen sequential improvement in the quarter over quarter performance with Q1 approximately 400 basis points better than Q4. This improvement was driven by strong performance in key existing proprietary brands such as Tech Gear and Flex and Active and Lauren Conrad in Women's. We will also look for opportunities to introduce new proprietary brands that fill a purpose for our customer and drive productivity within our merchandise portfolio. We have recently introduced three new home brands, Mariana, Motelier, and Mingle and Co, and have seen a strong initial response resulting in improved performance in our bedding, bath, and tabletop categories. While this progress is reassuring, our proprietary brands are still underperforming the company average.

Jill Timm
Chief Financial Officer at Kohl’s

We expect to continue to show improvement in our proprietary brands as we increase the flow of new goods as the year progresses. Another way we are delivering value to our customers is by enhancing our promotions. Our national brands also play an integral role in delivering quality and value. Our customers buy these brands at Kohl's as they know they got a great deal through exceptional promotions, coupons, and Kohl's cash. However, over the years, our promotions have become less impactful as a result of a growing list of brands that are excluded from the coupon.

Jill Timm
Chief Financial Officer at Kohl’s

At the April, we began our initial phase to move more brands to be included in our coupons. We are being thoughtful in actions and are taking a phased approach to read how the customer is reacting to the change. Early reads show our customers are responding positively to the change, especially in our digital business, and we expect to roll out more coupon eligible brands throughout the year with the majority of the changes completed by mid August to ensure our customers can use their promotional coupons to unlock more value on more brands for back to school and holiday shopping. The changes we are making to simplify our promotions and invest in our proprietary brands allow us to drive more value, which is especially important as consumers remain pressured. Our last area of focus is enhancing our omnichannel platform to deliver a frictionless shopping experience.

Jill Timm
Chief Financial Officer at Kohl’s

Our customers desire an easier and more reliable shopping experience both in stores and online. To deliver this elevated experience, we are focused on optimizing our store layout, restoring Trip Assurance, and increasing inspiration in stores and online. Following the completion of some preliminary productivity and adjacency analysis, we began to make out at store store layout, specifically with our accessories and juniors businesses. We created an accessory shopping experience behind the Sephora shop and moved the juniors business to the front of the store across from Sephora as both of these businesses over penetrate and cross shopping with Sephora. While these moves are recent, we are very encouraged with the results we saw in both categories in Q1.

Jill Timm
Chief Financial Officer at Kohl’s

Accessories comparable sales, excluding our Sephora business, were up 4% and juniors comparable sales were down 1%, both well ahead of the company performance. In addition to the sales performance, we experienced heightened cross shopping in both categories from our Sephora at Kohl's customers during the quarter. As we are refining our buying strategies, we are determined to restore the trip assurance our customer expects by providing greater depth in key items. This is especially important in our basics and essential apparel businesses. We improved our in stock rates on core basics and saw those businesses outperform the company, specifically in men's and kids.

Jill Timm
Chief Financial Officer at Kohl’s

We expect to make continual progress throughout the year as we realign our buying disciplines to provide better depth and clarity to our customers, all while tightly managing our inventory receipts down throughout the year. The goal of all this work is to make shopping at Kohl's a more enjoyable and reliable experience. We are encouraged with the initial results from these efforts, and we expect to continue this momentum throughout the year as we reposition our business for future success. In addition to these priorities, our organization will carry forward our commitment to driving operational excellence. We know that part of setting up the company for future success is operating with a high level of discipline and managing our costs.

Jill Timm
Chief Financial Officer at Kohl’s

Every day, we are working to create a more efficient organization that is focused on reducing costs to allow us to invest into our growth initiatives. You see the benefits of this effort through the 5% reduction in our SG and A costs this quarter on top of a 3.7% decline in Q4 of last year. Now let me provide additional details on our first quarter performance. Net sales declined 4.1% and comparable sales decreased 3.9% in the quarter. The variance between net sales and comparable sales was due to the closure of 24 stores in the quarter, which was completed in late March.

Jill Timm
Chief Financial Officer at Kohl’s

From a channel perspective, our stores continue to outperform the company with a comparable sales decline of 2.6% in the quarter. We have a strong store base that continues to generate both four wall operating profit and four wall cash flow. And although we have seen an improvement in our digital business, it continues to underperform with sales declining 7.7% in the quarter. The digital business over penetrates in the home category as well as our core credit customer, both of which underperformed in the quarter. However, we are seeing the digital business respond well to the investment we made in adding brands back into the coupon.

Jill Timm
Chief Financial Officer at Kohl’s

We continue to see strong sales from our new and non Kohl's card customers. However, our Kohl's card customer performance continues to lag the company. Our decisions related to downsizing our in store jewelry business, exiting the petites business, decreasing inventory in proprietary brands and increasing coupon exclusions had an outsized impact to Kohl's Charge customer performance. As we have made investments back into these categories and reduced coupon exclusions, we have seen an improvement in the sales trend of these customers. In addition, our middle and low income customers remain the most pressured.

Jill Timm
Chief Financial Officer at Kohl’s

These customers are prioritizing value and are trading down into lower price point products. The work we are doing to deliver value will help better serve these customers as they continue to be more choiceful with their purchases. Moving down the P and L. Other revenue was $184,000,000 in Q1, a 10% decrease versus last year. The decrease was primarily driven by a portion of our credit expenses shifting against other revenue as we move part of our account servicing to the third party that owns the accounts.

Jill Timm
Chief Financial Officer at Kohl’s

Gross margin in Q1 was 39.9%, an increase of 37 basis points. The year over year increase was driven by category mix benefits and continued inventory management. SG and A expenses in Q1 decreased 5.2% to $1,200,000,000 leveraging approximately 32 basis points versus last year. The decrease to last year was driven primarily by lower spending in stores, marketing as well as the benefit of a portion of credit expenses shifting into other revenue. Depreciation expense was $175,000,000 in the quarter, a decrease of $13,000,000 versus last year.

Jill Timm
Chief Financial Officer at Kohl’s

The decrease was driven by lower capital expenditures and the impact from closed locations. Interest expense in Q1 was $76,000,000 Relative to last year, interest expense decreased $7,000,000 primarily due to lower lease interest expense following the closure of 27 stores. Our tax rate was 10% in Q1. This resulted in a net loss for the quarter of $15,000,000 and earnings per diluted share of negative $0.13 a 46% improvement from last year. Moving to our balance sheet and cash flow.

Jill Timm
Chief Financial Officer at Kohl’s

We ended the quarter with $153,000,000 of cash and cash equivalents. Inventory was up 1.7% compared to last year, driven by inventory strategies implemented to navigate the tariff pressure, including the pull forward of receipts and pack and holdings seasonal inventory to be sold in the back half of the year. We continue to expect our inventory to be down high single digits by the end of the year. Operating cash flow in Q1 was a use of cash of $92,000,000 Capital expenditures for the quarter were $110,000,000 We continue to expect to spend 400,000,000 to $425,000,000 of CapEx this year related to the completion of the Sephora rollout, the Impulse QLine rollout to six thirteen stores and the expansion of our e commerce fulfillment center in Indiana. In Q1, we returned $14,000,000 to shareholders through the dividend.

Jill Timm
Chief Financial Officer at Kohl’s

We ended the quarter with $545,000,000 outstanding on the revolver. Now let me provide an update on the refinancing of our July 2025 maturities. Earlier this month, we completed a private offering of $360,000,000 aggregate principal amount of 10% senior secured notes due in 02/1930. The notes are secured by 11 of our distribution and e commerce fulfillment centers, which will be held by a newly formed holding company. The offering is expected to close on May 30.

Jill Timm
Chief Financial Officer at Kohl’s

We intend to use the net proceeds from the sale of the notes in a series of transactions resulting in the repayment of borrowings under its revolving credit facility. Kohl's expects to borrow under its revolving credit facility to repay all of its 4.25% notes due in July of twenty twenty five at maturity. Following this refinancing, Kohl's nearest debt maturity is not due until 2029, and our long term debt remains at a ten year low. This provides us with ample liquidity to navigate the macroeconomic uncertainty and invest in strategic initiatives of the company and build a stronger cash position. Next, I would like to provide context around how we are navigating tariffs and the impacts they have on our 2025 outlook.

Jill Timm
Chief Financial Officer at Kohl’s

Over the last several years, our talented and experienced global sourcing team has done an incredible job diversifying our countries of production to ensure that we are not overly reliant on any one country. Although tariffs remain a fluid and uncertain situation, the teams continue to work to reduce our exposure to high tariff countries by leveraging our diverse factory network to move production, adjusting orders based on pricing elasticity analysis, and working closely with our supplier and vendor base to proactively manage any impacts with the goal of continuing to drive value to our customers. As we look to the remainder of 2025, we remain focused on three key initiatives to better serve our customers. Given what we know today and the current actions we are taking to mitigate tariffs, we believe we can achieve our financial guidance for the year of comparable sales down 4% to down 6%, operating margin of 2.2% to 2.6% and diluted EPS of $0.10 to $0.60 Lastly, I would like to take a moment to acknowledge the amazing team at Kohl's. We are navigating through a lot of change, and your loyalty, dedication, and hard work have been unwavering.

Jill Timm
Chief Financial Officer at Kohl’s

Thank you for all that you do for Kohl's and the millions of customers we serve each day. With that, we are happy to take your questions at this time.

Operator

Thank you. We will now begin the question and answer session. And we'll go first to Mark Altschwager from Baird.

Mark Altschwager
Senior Research Analyst at Robert W. Baird & Co

Maybe to start off for Michael here. The strategic priorities outlined today, fairly consistent with what we heard on the last call. Any adjustments you're planning in the near term? And what do you think it will take to return to comp growth?

Michael Bender
Interim CEO at Kohl’s

Thanks for the question, Mark, and good morning. I'm thirty days in, so it's early days, but the evaluation of the plan is not something that we're considering major changes to. As a Board member, before I stepped into this interim CEO role, we are very aligned with the management team on the strategy that we're executing. So I don't see us making major shifts or changes to what's been articulated in terms of the strategy going forward. As it relates to your second part of your question with respect to what it's going to take to restore growth, as Jill mentioned, we're in the middle of a transformation and it's in early days honestly of it.

Michael Bender
Interim CEO at Kohl’s

And so it's going to take some time for us to get back to that. But the bottom line is that we're trying to align the business to meet the needs of our customers. And right now, our customers, some of them are stressed. And so we're trying to focus on value and restoring that confidence that the customer needs to be able to come to Kohl's and find what they're looking for at a great price so that they can stretch the dollars that they're looking for. I look at it almost, Mark, as when I break it down, there are kitchen table conversations going on across America every day.

Michael Bender
Interim CEO at Kohl’s

People are trying to figure out how to make sense of the dollars that they have to spend, and they're prioritizing where they want to put it. And so for put those dollars. And so for us, what's important is making sure that we are as close to being inside their heads and understanding what their needs are and meeting those needs at the time they need them. That's what it will take for us to get back to growth over time.

Mark Altschwager
Senior Research Analyst at Robert W. Baird & Co

Thank you. And Jill, just with respect to the guide, first, any color you can share on quarter to date trends would be great. And then you're holding the full year guide even with Q1 ahead of expectations. And then obviously, there's the tariff piece. I was hoping you could just walk us through some of the puts and takes there in terms of your thought process for the year.

Mark Altschwager
Senior Research Analyst at Robert W. Baird & Co

And what specifically are you doing to offset the tariff costs on your direct imports? Thank you.

Jill Timm
Chief Financial Officer at Kohl’s

Sure. So I think from a guidance perspective, clearly, we were happy with the performance we saw in q one. But I think we all know we're working in a very uncertain and what I would call fluid environment. And so as we thought about the pressures that we're seeing in particularly our middle income customer, the uncertainty that we're navigating for the rest of the year, we just thought it was the right thing to do, hold the guidance despite the beat in q one, which helps us, you know, have the room to navigate through that uncertainty for the rest of the year. In terms of the quarter to date trends, I would say our quarter really was a pretty consistent performance.

Jill Timm
Chief Financial Officer at Kohl’s

We did see our reg price selling improve as the quarter progressed, and we saw that actually into May. I'll call it one exception last week. It was pretty cold across the country, so we did see a little bit of a step back in our spring seasonal business. But I would say very much attributed to weather one week, and we felt really good with the momentum that we had been building in our regular price business. And a lot of that was driven with the newness that we're flowing in.

Jill Timm
Chief Financial Officer at Kohl’s

We talked about on the call needing to be back into that proprietary brand, And we are seeing that the customer is reacting as we flow in that newness to our proprietary brands. That is an opening price point. So as we talk about value, it's one key way that we can continue to deliver value to the customer. From a tariff perspective, we kind of tried to outline in the call what we are looking at. But back in, I think, 2017 when we were talking about border tax, we had started diversifying our countries of production.

Jill Timm
Chief Financial Officer at Kohl’s

And our sourcing team has done a really nice job ensuring that we have a very diverse portfolio of countries that we leverage. And so we're not overly reliant on any one country. So they have been working tirelessly with our buyers production to different countries, to the lower tariff countries, to help mitigate against those costs. We also have adjusted orders. So where we know we have high elastic categories like a small electrics that may be taking price increases from a national brand vendor, we'll adjust our orders down knowing that the velocity of that demand just won't be there.

Jill Timm
Chief Financial Officer at Kohl’s

And so we're making those choices real time and working very closely with our supplier and vendor base to correctly offset any imports. Because at the end of the day, our goal is really to continue to drive incredible value to consumers during the uncertainty that we're navigating.

Mark Altschwager
Senior Research Analyst at Robert W. Baird & Co

Thank you.

Operator

We'll move next to Oliver Chen at TD Securities.

Analyst

Hi, Michael and Jill. This is Julia on for Oliver Chen. Could you please break down the year over year increase to gross margin we saw this quarter in terms of how much came from markdown for its category mix and proprietary brands? And then any color you could provide on private label penetration and AUR and gross margin delta versus national brands within private label? Thank you.

Jill Timm
Chief Financial Officer at Kohl’s

Yeah. I mean, on gross margin, the biggest piece is is we're seeing a mixed benefit. And I think, know, we've talked a lot about our proprietary brands have a better margin structure. And so as we move more into that, we'll see improvement. Kind of the rule of thumb we use is for every hundred basis points of penetration, we improve our proprietary brands.

Jill Timm
Chief Financial Officer at Kohl’s

You'll get about a 50 10 to 15 basis point improvement in our margins. I think the other big thing is, and this is, you know, pretty consistent internal and external is my my passion around inventory management. And the the more we can manage the inventory, the better reg selling, as I indicated we have, the better margin structure. And so you continue to see that's a key enabler for us to continue to grow margin. And so I would say, you know, those are the two big drivers that we outlined because that's really where we see the benefit coming through from a margin perspective.

Jill Timm
Chief Financial Officer at Kohl’s

And I think as the year progresses, then our strategy really is aligned around around the proprietary penetration. And we don't have a goal for that. We're always going to let the customer tell us where proprietary brand penetration needs to be. But what I would tell you is we're probably at an all time low on what our penetration was. I think we're averaging around 30% penetration there.

Jill Timm
Chief Financial Officer at Kohl’s

We've been up and down over the course of the last decade. I will say that we never will hit back to the highs you would have seen when we were closer to fifty-fifty because Sephora is obviously a national brand and has a large penetration being close to a $2,000,000,000 business. But we do have a lot of room here to move back into proprietary brand penetration. And I think it's very timely given the value that those brands bring to our customers. And we are really missing that opening price point opportunity for our customers to shop us, and we know that they especially our core customers, look for that opening price point.

Jill Timm
Chief Financial Officer at Kohl’s

They've grown to love the quality and size and fit of those brands, and they were just really vacant. So as we brought those back in, we've seen, good momentum, particularly with our core customers from that perspective. And then from an AUR perspective, I think all in our ATV is really what we saw in quarter and that is based on consumers trading down. So they're trading down into lower AUR goods. We saw our UPT up a little bit, but they're still looking for that value.

Jill Timm
Chief Financial Officer at Kohl’s

So I think everything that we're seeing and the way that our buys are going to go forward are going to really be a driver of opening price point. So I do expect we're going to have some AUR pressures given those choices, but they are making up for some of that in UPT. The other piece of UPT is we did talk about expanding our impulse, and we do see our impulse lines add a back item to the basket. So that's just a UPT driver. So getting that into 600 more stores by q three, I think, will be a way for us to continue to balance out that basket.

Analyst

Thank you so much.

Operator

We'll move next to Dana Telsey at Telsey Advisory Group.

Dana Telsey
CEO and Chief Research Officer at Telsey Advisory Group

Hi, good morning everyone. As you think about the store footprint and I know a lot of the stores are profitable, how are you assessing what the right number should be? Should there be any additional closings and also the size of the format? And then just lastly is just unpacking the tariffs just one more time with the latest news on tariffs, how are you thinking about inventory levels and pricing as we get to the fourth quarter? Thank you.

Jill Timm
Chief Financial Officer at Kohl’s

So yeah. I mean, Dana, you know my take on on stores. We have an incredibly healthy store base in terms of they make four wall operating profit, they make four wall cash. We do an exercise every year to really look at our store base and understand where potentially there could be some edits. So we closed 27 stores.

Jill Timm
Chief Financial Officer at Kohl’s

I look at that as hygiene. It's like 2% of our fleet. So we'll always be looking at understanding what does that mean. We also look at the fleet to say as leases come due, which you know I think we have about 80 plus leases coming due a year, which gives us incredible flexibility. Are there opportunities to relocate them given just the shift of population where competition resides, etcetera, or downsize them as well given what sizes make most sense given community populations?

Jill Timm
Chief Financial Officer at Kohl’s

I would say we've learned a lot. We've tried many different sizes. We have a 64,000 square foot store, a 55,000, a 35,000 outside of our normal prototype. And so we've really learned like what makes the most sense for Kohl's to be able to deliver the right assortment to the community. I would say maybe the 35 ks we're finding is a little too small.

Jill Timm
Chief Financial Officer at Kohl’s

And so we're kind of really focusing and centering ourselves on the 55 ks. And I think that's a way for us to reach more communities that we're not serving today. And potentially as we make a downsize opportunity out of some of our 88,000 square feet just to heighten the productivity of those stores. So I think there's always going to be edits around the store portfolio to continue to elevate its productivity, but I don't see that there's gonna be a ton of closures there outside of the normal hygiene that we'll do every year as we look at that store base. In terms of tariffs, I would say it is a fluid situation given the news last night and this morning.

Jill Timm
Chief Financial Officer at Kohl’s

So, obviously, everything that we're talking about was what we had known going into today's call. I would say if there is a pause from a tariff perspective, of course, that could be a positive, particularly around the consumer. If I play out for where Michael's comments were, we have a consumer who's stretched. Our middle income customer that we are serving is definitely a stretched customer. And so if they don't have to see price increases from tariffs and they have more discretionary income, that, of course, always would help our business.

Jill Timm
Chief Financial Officer at Kohl’s

So we could see that as a positive. But it's really not actually changing a lot from how we're managing inventory. We expect our inventory to be down high single digits by the end of the year. We expect our receipts to be tighter. We have an opportunity to turn this business faster, and that's really what we're doing.

Jill Timm
Chief Financial Officer at Kohl’s

But we're trying to do it on a paced approach because we don't want to pull too much out. We know flow of freshness and receipts is important. And so that's really the way that we're continuing to navigate the situation. But obviously, if there's different costs or price increases, the elasticity would change on some of those. So it could change our buys slightly.

Jill Timm
Chief Financial Officer at Kohl’s

But I would say overall, positive more from a consumer perspective.

Michael Bender
Interim CEO at Kohl’s

And Dana, just to follow on on what Jill was mentioning on the tariff question. I think aside from national brands, which we have to follow the pricing on certain brands, We think that within the guidance that we've given, we can manage through the tariff issue. And that's what we've said. As what as of based on what we know today, that's what we're saying. But as we continue to move through it, and last night's example in the court ruling, I think, is just an illustration of how fluid the situation is, we'll continue to monitor it and make sure that we're taking the right steps.

Michael Bender
Interim CEO at Kohl’s

But we've already done that. And in many cases, we're not overly reliant on any one country that's causing us any challenges at this point.

Dana Telsey
CEO and Chief Research Officer at Telsey Advisory Group

Thank you.

Operator

Next, we'll move to Michael Binetti at Evercore ISI.

Jesalyn Wong
Director at Evercore ISI

Hi, this is Jesslyn Wong on behalf of Michael. Thank you for taking our questions here. Maybe just on Sephora, how many Sephora are in close right now? And how many stores do you expect to further expand, or deepen this collaboration? Maybe a little bit more color on the operating environment in the first quarter with comp growth being at 1%. Thank you.

Jill Timm
Chief Financial Officer at Kohl’s

Sure. So from a Sephora perspective, we just finished the rollout. So I think it's in all of our stores at this point in time. I think a hundred and three stores went or are in the process of finishing up as we're speaking. So we now have a presence in all the stores that will have a Sephora.

Jill Timm
Chief Financial Officer at Kohl’s

The last ones that went were a smaller shop. So as we went into the smaller square footage stores, we put in a seven fifty square foot shop versus our larger stores have a 2,500 square foot shop. We actually are pleased with the performance we saw from Sephora. Although the comps stepped down, we expected that. Obviously, this is a relationship that I think now we're in our fourth year, so we're going to expect these comps not to be as robust as we have less new stores opening.

Jill Timm
Chief Financial Officer at Kohl’s

We are continuing to see market share gains in the beauty space. And we did see, I think, Q1 in fragrance and hair and makeup were really the ones that stood out for us. I think we had some opportunity more in the skincare categories. As we go into Q2, we do have some newness coming in around hair care and then also makeup with Glossier. And then we also have an opportunity with Father's Day.

Jill Timm
Chief Financial Officer at Kohl’s

So men's fragrance actually outperformed in Q1. We're going to give it more exposure as we go into Father's Day. So we think that's a big moment as well that we can take advantage of. So as we think about the remainder of the year, I think we're pleased with where we saw Sephora, and it's on pace for our expectations.

Jesalyn Wong
Director at Evercore ISI

Got it. Thanks, guys.

Operator

We'll take our next question from Paul Lejuez at Citigroup.

Tracy Kogan
Tracy Kogan
Analyst at Citigroup

It's Tracy Kogan filling in for Paul. I had a question on your e com performance in the quarter. I know you mentioned the sales decline. I was wondering if you could talk about the profitability there and when you think we might be able to see improved sales performance. And then I just had a a quick follow-up on tariffs. Thanks.

Jill Timm
Chief Financial Officer at Kohl’s

Sure. So digital obviously, improved, Tracy, from q four pretty substantially. We obviously had some self inflicted issues in Q4 that we corrected for. I think a couple of things that weigh on digital is it's highly penetrated in our cold charge core customer, which is the area that has been underperforming for us given some of the decisions we've made over the last couple of years. So when we continue to see improvement in the core customer, we'll see some continued improvement in the digital business as well.

Jill Timm
Chief Financial Officer at Kohl’s

Second, it overpenetrates in our home businesses. And home underperformed for the category or for the quarter, so we did have a little bit of pressure from that perspective. I would say that we should continue to see progressive improvement from digital, based on a lot of the changes that we're making. I think there's some opportunities, in some of our new businesses. Like, we know Babies R Us particularly has a good digital business and how can we capitalize and and take care of that.

Jill Timm
Chief Financial Officer at Kohl’s

So there's some fixes that we're putting in, but I would say it's gonna be a progressive improvement, and it's really gonna be around that core cold customer coming in to be able to drive that business forward from that perspective. I mean, from a profit, I would say, you know, we always say store is a little bit more profitable because we don't have a cost of shipping, but we're very pleased with the digital business. And obviously, across the organization, we've managed our expenses incredibly well. I think you know we're very disciplined, and we continue to see margin expansion. And that benefits both channels.

Jill Timm
Chief Financial Officer at Kohl’s

So I think as we've continued to see below that sales line continue to improve, that has a benefit on both sides. So from a profit perspective, I still think I'm pleased with where we're moving it. Obviously, when you have a cost of shipping component, it's gonna be a little less profitable than your stores. It's really gonna get that top line back in check, and I think it's going to be, progress, not an overnight improvement.

Tracy Kogan
Tracy Kogan
Analyst at Citigroup

Got it. Thank you. And just to follow-up on tariffs, I was wondering how much much margin pressure you're building into guidance, or are you assuming that you can mitigate, all of it? Thanks.

Jill Timm
Chief Financial Officer at Kohl’s

We do think we can mitigate a vast majority of the tariff pressures based on everything we outlined earlier in the call. But everything that I just gave you from a guidance has been taken into consideration of any of the tariff exposure that we do have. So we feel very good, obviously, coming out strong in q one. But then what that means for the rest of the year, we felt good and confident based on what we know today that we'll be able to hit that guidance.

Tracy Kogan
Tracy Kogan
Analyst at Citigroup

Great. Thanks very much.

Jill Timm
Chief Financial Officer at Kohl’s

Mhmm.

Operator

Next, we'll move to Blake Anderson at Jefferies.

Blake Anderson
Vice President at Jefferies & Company Inc

Hi. Thanks for taking our questions. So first one was you have a large and loyal customer base, with your your private label offering. Was thinking about, as you think about the path forward back to sales growth, how are you prioritizing growth with existing customers versus gaining new customers?

Michael Bender
Interim CEO at Kohl’s

Go ahead, Bruce.

Jill Timm
Chief Financial Officer at Kohl’s

I would say, first, our new customer growth has been great. Our performance with our new customers and what I would say, I'll call it a non cold charge customer, has actually been positive. So we're feeling really good with the initiatives that we had to attract the new customer, to retain that new customer, and actually even to see them shop more widely. Particularly, we've seen that in our accessories and juniors businesses. It's the core customer that we are very focused on, and what we need to do to get back to growth is to move that customer in the right direction.

Jill Timm
Chief Financial Officer at Kohl’s

The good news is this customer has still shopped us, so they haven't stopped shopping us. They're just giving us less of their wallet share, and a lot of this is self inflicted. So we laid out some of the things that we did. When we brought in Sephora, we took away jewelry. Well, jewelry was something they came to Kohl's for, and it wasn't really substitutable.

Jill Timm
Chief Financial Officer at Kohl’s

So if I wanted to find a necklace and earrings, I didn't come to Kohl's and say, instead I'll buy a sweater. So we lost that trip. We lost that basket. As we've brought jewelry back in, you know, we've seen it grow both in q four and again in q one, seeing that positivity come through in the whole accessories pad. Just giving that accessories pad a home behind Sephora, which does have a nice cross shopping, we had a four comp in accessories for the quarter.

Jill Timm
Chief Financial Officer at Kohl’s

They also shopped a lot of petites. So we had exited out of petites. We brought petites back in for the you know, that customer. Again, not substitutable. If you're a petite, you're not gonna buy regular.

Jill Timm
Chief Financial Officer at Kohl’s

So we lost that trip. We lost that basket. So as we brought it back in, we've seen it really resonate with that customer, and our petite business up in the teens for the quarter. Additionally, they were a proprietary brand lover. They knew the brand.

Jill Timm
Chief Financial Officer at Kohl’s

They liked the quality. They liked the value that it brought, and it was coupon eligible. And we instead, when we moved to market brands, we replaced it with brands they didn't know at a higher price point without a coupon. So we really needed to make that correction, and we started doing that last year. We called it out in q three.

Jill Timm
Chief Financial Officer at Kohl’s

We saw it again in q four. We're doing it in q one. And as we're bringing those goods in, it's an opening price point, so it's squarely in the value center of what they're looking for, and they're finding the brands that they had come to love. So we just need to continue to flow that inventory thoughtfully. So that's where we feel like there'll be some progressive improvement as those receipts in the newness sets.

Jill Timm
Chief Financial Officer at Kohl’s

I think the last thing I would call out is we had a lot of brands that became excluded. In fact, we are more excluded than included or right at the fifty fifty mark. And so when we did that, it really polarized from a core customer who came in with a coupon and felt disappointed they couldn't use it on some things. So in April 28, we brought a lot of new brands back into the coupon. It's early, but we did see this as a place, I guess, I go back to Tracy's question, digital really reacted well to the coupons.

Jill Timm
Chief Financial Officer at Kohl’s

It's very price sensitive. So as we can bring items back into the coupon, we also think that will bolster our digital business, but also plays very much to this core customer. So a lot of the strategies that we're outlining is really getting back to talking to that core customer and and gating back their trust and getting back the wallet share that we lost. But, again, they're still shopping us, so, that's a little bit easier, of a a challenge for our marketing team. They don't have to go find them.

Jill Timm
Chief Financial Officer at Kohl’s

We just have to get them to come in more.

Michael Bender
Interim CEO at Kohl’s

Mark, I would just add on top of what Jill said, a couple of things to note. We're doing a lot of work right now with our marketing organization to figure out who the not who the Kohl's customer is. We know who they are, but to the extent that we can understand how to reach them even more effectively, that's one area. In the store experience itself, Jill mentioned earlier in her opening remarks about the aisle adjacencies and moving products like junior dresses outside of Sephora so that when you talk about cross shopping and conversion, those are the types of things that will help enhance the experience that the customer has once they decide to come to our locations there or on the website. And then Trip Assurance is one of the things that's really important for both customers, new and existing, and making sure that that balance between having choice on the floor and on the site, but also depth so that when a customer does choose to come to a Kohl's location that they can actually find what they're looking for in the right sizes and colors, etcetera.

Michael Bender
Interim CEO at Kohl’s

Those are things that we're all working through right now as well to make sure that we fine tune the business again to make sure that once the customer decides that this is where I want to go to shop, that they can be satisfied with the experience that they have. At the end of the day, a customer asks four questions when they decide to come to anywhere. You put your own hat on as a customer, whether you're going to a restaurant or a cold store. They ask, what do you have? How much does it cost?

Michael Bender
Interim CEO at Kohl’s

Where can I get it? And when? And we're working down through the answers to all four of those questions with a lot of work that's going on inside of our of our business right now to really codify what it is we need to do both online and in store to make sure that we're satisfying the needs of customers when they ask those four questions.

Blake Anderson
Vice President at Jefferies & Company Inc

That's very helpful. Appreciate all the detail. And then I wanted to ask a follow-up. This was for you, Michael. On national brands, curious if, at a high level, you can share any color on conversations recently you've had with your key vendor partners about, you know, maybe expanding or changing assortment?

Blake Anderson
Vice President at Jefferies & Company Inc

And then how do you think about the need to add new national brands over time?

Michael Bender
Interim CEO at Kohl’s

Yeah. I think maybe I'll take the second part of that question first. And I I think as as we have mentioned, we're on this journey right now of making sure that we provide the appropriate balance between our proprietary private label brands and the national brands. I think candidly, we've added a lot of national brands over the past several years or so. And so our customers are actually asking for, and as Jill mentioned, the Kohl's credit customer in particular is asking much more for proprietary brands at this point.

Michael Bender
Interim CEO at Kohl’s

And so we're trying to achieve that type of a balance. That doesn't mean that we won't consider adding national brands and tuning the assortment there. Conversations that we've had so far have been positive in terms of the focus that we have on continuing to provide national brands. We know we need to. That's what a large portion of our customers are interested in as well and we'll continue to do that.

Blake Anderson
Vice President at Jefferies & Company Inc

Great. Thank you both.

Operator

We'll go next to Chuck Grom at Gordon Haskett.

Chuck Grom
Managing Director at Gordon Haskett Research Advisors

Hey, good morning. Thanks very much. On the guide, Jill, you reiterated the 2.2% to 2.6% operating margin for the year. I hop on late, so I don't know if you spoke to the gross margin guide. I think you had formally thought up 30% to 50% and then SG and A dollars.

Chuck Grom
Managing Director at Gordon Haskett Research Advisors

Can you just hold our hands on that front? And then on the gross margin front, just any thoughts on the phasing throughout the year?

Jill Timm
Chief Financial Officer at Kohl’s

Sure. So we talked briefly just about margin. I feel good with the guide, Chuck. A lot of the pressure for tariffs we were able to offset, and what we are absorbing was in the guide. So we feel comfortable with the fact that we'll hit that for guide.

Jill Timm
Chief Financial Officer at Kohl’s

I would say on the cadence for the year, maybe look at q two on a two year stack the same way that you looked at q one. And then, you know, the back half, we think we have some some room to do some things. We're gonna still be incredibly focused on value. You know, we are gonna get benefits, Chuck, on our proprietary brands. So as that newness flows, and we get that throughout the year, that's why I feel like back half, we have a little bit more room.

Jill Timm
Chief Financial Officer at Kohl’s

That's margin accretive for us, so we'll continue to look at that. We are bringing, you know, products back into the coupon, so we do think being more promotional and being having value orientation throughout the year is gonna be important, particularly because this middle income customer that we serve is pretty stretched in today's environment. So I feel like the 35 to or the 30 to 50 points that we gave for margin is definitely still something that we can achieve, given all the efforts that our teams have put forth to mitigate tariffs, knowing we had these strategies to go back into proprietary brands and have more coupon eligibility. And so what I would just say maybe on the two year stack for q two, look at it like you did for q one. And otherwise, I'd say the back half, have some additional benefits off of penetration for proprietary.

Operator

And we'll take our final question today from Brooke Roche at Goldman Sachs.

Brooke Roach
Brooke Roach
Vice President - Equity Research at Goldman Sachs

Good morning, and thank you for taking our question. I was hoping you could dive a little bit deeper into the progress that you've made in the women's business. It sounds like you do have some green shoots emerging in petites. If you look at the women's business as a whole, when do you expect to return to sustainable growth in that business and how should we be thinking about that cadencing throughout the year?

Jill Timm
Chief Financial Officer at Kohl’s

Yeah. I can start on women's. What I would say is women's is one of the, I think, fast adapters of moving into market brand. And so we definitely moved out of our proprietary portfolio more in the market brands. And I think, you know, our choices were up double digits, and our depth was down relatively down double digits as well because we're still managing inventory well in that in that area.

Jill Timm
Chief Financial Officer at Kohl’s

So given the fact, if you look at historically, women's had an outsized penetration in proprietary brands. I think they're, like, 60% to 70% penetrated in proprietary brands. This move had a pretty big impact to their business. And so as they're moving back into proprietary brands, we're seeing that momentum build. And I'll use junior's.

Jill Timm
Chief Financial Officer at Kohl’s

I mean, that's our fastest fashion business. It's our fastest business that we can correct, and it was only down one in the quarter. I think if you look at brands like SOHO and Sonoma, we're moving back into those brands. We're starting to see some momentum there. Lauren Conrad, we called out as a positive.

Jill Timm
Chief Financial Officer at Kohl’s

So as we brought more of that in, it's helped the women's business. So I would say this will continue to be a progressive improvement in terms of getting women's back to positive growth. Dress is still a great category for us. It was a white space category we moved into, So really continuing to build momentum behind some of that newness, but making sure that we still deliver the depth on key basics and essentials, making sure that we have the proprietary brands that those customers have come to love and they're looking for, I think, are going to be key areas for us. I think one other place that rolls into women's has been intimate, and that's been a little bit of a laggard in terms of synopsis from sales.

Jill Timm
Chief Financial Officer at Kohl’s

So I know that that's another place that has a lot of SKU intensity there. So really looking at building some clarity and kind of reducing some choice count and having some more depth in those categories as well. So I would say we'll see improvement in women's throughout the year, but I don't know like, I can't tell you when it gets back to positive growth, but I think everything that the efforts they have afoot are making the right movement for us to have progress in that category.

Brooke Roach
Brooke Roach
Vice President - Equity Research at Goldman Sachs

Great. And then just one quick follow-up. Are there any updates that you can share on your credit business for the rest of the year? How you're thinking about that from a cadencing perspective, but also, how to get that back to a more flattish or growth figure in the future.

Jill Timm
Chief Financial Officer at Kohl’s

Yeah. I I think don't forget we made the move up to, from SG and A into other revenue. So a big portion when we guide I think we guided that line down 12%. And I had said without that move, we'd actually be better than our sales. So I just wanna make sure that that's understood that there's a onetime adjustment that's showing a drain on that line that has nothing to do with the actual portfolio itself.

Jill Timm
Chief Financial Officer at Kohl’s

You know, we talked a lot about our core customer, Brooke, being down. That weighs in on our credit. Right? So as as those sales are down, you build less of your AR, and therefore, you have less revolving balances. So that is kind of weighing down on what we're seeing there.

Jill Timm
Chief Financial Officer at Kohl’s

So as those credit customer sales that we're very focused on continue to make positive improvement, we'll see that obviously transfer into that revenue line. But I would say it's still leading from a sales perspective. It's just that change in terms of SG and A that's really showing the weight down.

Brooke Roach
Brooke Roach
Vice President - Equity Research at Goldman Sachs

Great. Thanks so much. Best of luck. I'll pass it on.

Jill Timm
Chief Financial Officer at Kohl’s

Thank you.

Operator

And that concludes the question and answer session and today's conference call. Thank you for your participation. You may now disconnect.

Analysts
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Key Takeaways

  • Net sales declined 4.1% and comparable sales fell 3.9% in Q1, impacted by the closure of 24 stores and underperformance in digital sales (down 7.7%).
  • Kohl’s reported a net loss of $15 million (EPS of negative $0.13), though this represented a 46% improvement from the prior year.
  • Sephora at Kohl’s initiative fully rolled out to all stores, driving a 6% increase in net sales and 1% comp sales in Q1 and completing the chainwide expansion of over 1,100 shops.
  • Gross margin expanded to 39.9% (+37 basis points year-over-year) supported by favorable category mix and disciplined inventory management.
  • Kohl’s strengthened its balance sheet by issuing $360 million of 10% senior secured notes due 2030 to refinance near-term maturities, pushing the next debt maturity to 2029 and preserving liquidity.
AI Generated. May Contain Errors.
Earnings Conference Call
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