Kohl's Corporation (NYSE: KSS) had a bit of a mixed bag in its latest earnings report, and the market's reaction was similarly nuanced. Shares ticked up about 1.7% in Wednesday's premarket trading, even as the retailer reported a decline in comparable sales. The reason for the optimism? A big earnings beat, thanks in large part to a windfall from tariff refunds.
During the earnings call, Kohl's said its core low- and middle-income customers remained "choiceful" about discretionary purchases amid "persistent financial pressures from inflation." CEO Michael Bender said the company expects "this economic backdrop to continue" through the rest of the year. To navigate the pressure, Kohl's plans to introduce holiday merchandise earlier to "capture demand early," while also emphasizing value and offering a "compelling assortment."
Bender also noted that Sephora at Kohl's faced headwinds during the second quarter, with sales declining 4%.
Kohl's Earnings Snapshot
Kohl's reported adjusted earnings of $1.28 per share, beating the consensus estimate of 57 cents by a wide margin. Net sales decreased 0.9% year-over-year to $3.32 billion, bringing total revenue to $3.52 billion, which outperformed Wall Street expectations of $3.35 billion.
Gross margin expanded 305 basis points to 43%. The increase included about $100 million in benefits to the cost of merchandise sold from refunds tied to tariffs imposed under the International Emergency Economic Powers Act. Kohl's received about $150 million in tariff refunds during the quarter. The company recorded part of the amount as an inventory reduction, shared some with vendor partners, and reinvested a portion to offer customers greater value.
Operating income reached $261 million (7.4% of total revenue), down from $279 million in the prior-year period, representing a 45 basis point margin contraction. Inventory declined 3% year-over-year to $2.9 billion. Operating cash flow fell to $552 million from $598 million a year earlier. Kohl's ended the quarter with $821 million in cash and cash equivalents.
Capital Returns
Kohl's board declared a regular quarterly dividend of 12.5 cents per share, payable Sept. 23, 2026, to shareholders of record as of Sept. 9, 2026. The company also plans to resume share repurchases of up to $100 million in 2026 under its existing $3 billion authorization.
Kohl's Outlook
Kohl's raised its fiscal 2026 adjusted earnings outlook to $1.80 to $2.40 per share from $1 to $1.60. The revised range compares with the $1.43 consensus estimate. The company raised its adjusted EPS forecast by 80 cents, and about 65 cents of that increase came from $150 million in tariff refunds. CFO Jill Timm said improving credit revenue accounted for most of the remaining increase.
But here's the catch: Kohl's expects fall margins to turn negative as it prepares for heavier promotional activity during the critical holiday season. Timm said the retailer will reinvest part of its tariff refunds in lower prices to remain competitive as financially stretched shoppers seek greater value. However, the improved comparable-sales guidance, from a 1.5% decline to flat, reflected stronger business trends and management's confidence in its turnaround initiatives, not the tariff refund itself.
The company increased its sales outlook to a range of $15.29 billion to $15.53 billion from $15.22 billion to $15.53 billion. Analysts expect sales of $14.89 billion.
KSS Price Action: Kohl's shares were up 1.72% at $17.98 at the time of publication on Wednesday.
