Kohl's Corporation (KSS) shares rocketed higher Tuesday after the struggling retailer surprised investors with solid third-quarter results and a substantial boost to its full-year outlook. The 34% surge may also reflect something more dramatic: a short squeeze forcing bearish investors to abandon their positions.

Better Than Expected Performance

Kohl's reported adjusted earnings of 10 cents per share for its fiscal third quarter, handily beating analyst expectations of a 20-cent loss. That's not a typo—analysts were expecting the company to lose money, and instead it posted a profit.

Revenue came in at $3.41 billion, up 2.8% from the prior year and ahead of Wall Street's $3.32 billion estimate. Comparable sales did decline 1.7%, but that's actually an improvement from what many feared given the broader retail environment.

Gross margin expanded to 39.6% of net sales, up 51 basis points. Adjusted operating income landed at $77 million compared to $98 million last year, with operating margin at 2.2%.

The company also showed significant improvement in cash generation. Operating cash flow was $124 million compared to a cash burn of $195 million in the same quarter last year—a meaningful turnaround.

Kohl's ended the quarter with $144 million in cash and equivalents. The company did increase long-term debt by $348 million during the quarter after issuing $360 million in 10.000% senior secured notes due 2030.

Leadership Makes It Official

Michael J. Bender, who had been serving as interim CEO since May, was officially appointed permanent CEO effective November 23, 2025. He'll continue serving on the board as well.

"We are pleased with Kohl's third quarter results, marking a third consecutive quarter of delivering top-line and bottom-line performance ahead of our expectations," Bender said. "These results are a direct reflection of the progress we are making against our 2025 initiatives, reinforcing our confidence as we continue to move in the right direction."

The board also declared a quarterly dividend of 12.5 cents per share, payable December 24, 2025, to shareholders of record as of December 10, 2025.

Dramatically Improved Guidance

Here's where things get interesting. Kohl's raised its full-year fiscal 2025 adjusted EPS guidance to $1.25–$1.45, up from prior guidance of just 50–80 cents. That's more than doubling the low end of the range. The consensus estimate had been sitting at 71 cents, so the new guidance meaningfully exceeds expectations.

The company does expect net sales to decline between 3.5% and 4% for the full year, but investors seem willing to look past modest sales declines when profitability is improving this dramatically.

The Short Squeeze Angle

What makes Tuesday's move particularly noteworthy is the company's elevated short interest. Kohl's had 29.29 million shares sold short, representing a whopping 36.75% of the publicly traded float. That's an extraordinarily high level of bearish positioning.

When a heavily shorted stock delivers unexpectedly good news, short sellers often rush to cover their positions by buying shares, which pushes the price even higher. That forced buying creates a feedback loop—the short squeeze—that can send shares soaring well beyond what fundamentals alone might justify.

With over a third of the float positioned bearishly, Tuesday's 34% surge to $21.04 has all the hallmarks of shorts scrambling for the exits.