Kohl’s Earnings Call Balances Profit Gains With Soft Sales

Kohl’s Corporation ((KSS)) has held its Q4 earnings call. Read on for the main highlights of the call.

Kohl’s latest earnings call struck a cautiously optimistic tone, as management highlighted meaningful gains in profitability, cash generation, and balance-sheet strength even as sales continued to decline. Executives acknowledged missteps in merchandising and holiday execution, stressing that while corrective actions are underway, the recovery in traffic and comps will be gradual and uneven.

Improved EPS Despite Weak Sales

Kohl’s posted adjusted net income of $125 million in Q4 and $186 million for 2025, translating to adjusted diluted EPS of $1.07 in Q4 and $1.62 for the full year. Management emphasized that EPS was well ahead of last year despite a softer top line, underscoring significant cost and margin work beneath the surface.

Liquidity Strengthens and Leverage Comes Down

The company closed the year with $674 million in cash and equivalents, up $540 million year over year, supported by $750 million of Q4 operating cash flow and $1.4 billion for the full year. Kohl’s fully exited its revolver, repurchased $87 million of long-term debt at a discount, and cut interest expense by $15 million in Q4 and $31 million for the year, improving financial flexibility.

Gross Margin Expansion Backed by Tighter Inventory

Gross margin expanded 25 basis points in Q4 to 33.1% and 34 basis points for the year to 37.5%, driven by disciplined inventory management and fewer clearance markdowns. Overall inventory was reduced roughly 7% year over year, positioning the chain with cleaner stock and fresher receipts for spring.

SG&A Cuts Support Profitability

SG&A expenses fell $76 million, or 4.9%, in Q4 and 4.1% for the year, and on a shift-adjusted basis declined 4.1% in Q4 and 2.8% for the full year. Lower store, marketing, and fulfillment costs contributed to the savings, while depreciation decreased as well, with Q4 depreciation at $174 million, down $9 million.

Omnichannel and Digital Capabilities Advance

Digital sales grew low single digits in Q4 and were flat for the full year, with digital penetration rising about 220 basis points to 35% of total Q4 sales. Management cited gains in store-enabled fulfillment options like BOPIS, BOSS, and ship-from-store, alongside ongoing work to modernize the website, enhance personalization, and make data architecture ready for AI applications.

Proprietary Brands and Beauty Show Bright Spots

Proprietary brands delivered “pockets of strength,” with juniors up 8% and petites up 26% in Q4, while men’s and kids’ proprietary books posted positive comps even as total proprietary brands fell 3%. The Impulse expansion generated over 40% comp growth where rolled out, and Sephora at Kohl’s grew 2%, with Q4 comps improving to flat and MAC now present in roughly 850 locations.

Operational Adjustments and Early Wins

Management highlighted inventory and allocation changes that led to a much smoother spring transition, reducing the disruptions seen in prior seasons. Looking ahead, Kohl’s plans to increase inventory depth in targeted areas, streamline choice counts, boost marketing for its “By Kohl’s” proprietary brands, expand $10-and-under impulse zones, and continue omnichannel improvements into 2026.

Top-Line and Traffic Remain Under Pressure

Net sales fell 3.9% in Q4 and 4% for the year, with comparable sales down 2.8% in Q4 and 3.1% for the full year. Store sales dropped mid single digits, driven primarily by lower transactions, which management identified as the main drag on the top line.

Holiday and Seasonal Execution Misses

Executives acknowledged losing share during key holiday windows such as Black Friday, Cyber Monday, and the post-Christmas period due to weaker promotional and value positioning. Fall seasonal allocation misfires and overly deep buys in seasonal home décor, combined with uncompetitive pricing, led to notable underperformance in those categories.

Credit Business and Other Revenue Under Strain

Other Revenue, largely from the credit portfolio, declined 9% in Q4 and 10% for the year, reflecting lower accounts receivable balances. Kohl’s card customers remain down mid single digits despite sequential improvement, and management expects Other Revenue to fall another 4% to 6% in 2026 due to ongoing portfolio and accrual dynamics.

Weather Adds Short-Term Volatility

Severe winter storms weighed on traffic and sales during Q4, with management estimating about 70 basis points of comparable sales pressure tied to the weather. Roughly half of the store fleet was temporarily closed during January storms, exacerbating already soft trends.

Digital Conversion and Transactions Lag

While digital traffic increased, conversion slipped, leaving full-year digital sales essentially flat despite a small Q4 lift. Management stressed that the core problem is declining transactions and trip frequency, as average order value has historically been relatively stable and is not the main driver of weakness.

Category Weakness in Footwear and Home

Footwear underperformed, pressured by softness in active footwear and intentionally reduced buys in boots, which limited upside even as demand shifted. The home segment also struggled, primarily due to seasonal décor, where inventory planning and pricing missteps resulted in slow sell-through and margin pressure.

Cautious 2026 Outlook Signals Slow Grind Ahead

For 2026, Kohl’s expects net and comparable sales to range from down 2% to flat versus 2025, with operating margin between 2.8% and 3.4% and EPS of $1.00 to $1.60. Guidance calls for Other Revenue down 4% to 6%, gross margin flat to slightly lower, modest SG&A dollar reductions, lower inventory, capital spending of $350 million to $400 million, and comps starting down low single digits in Q1 but building modestly over the year.

Kohl’s earnings call painted a retailer that has tightened its operations and fortified its balance sheet but still faces a demanding demand backdrop. Investors will be watching whether the company’s merchandising resets, digital upgrades, and impulse and beauty initiatives can reverse transaction declines and translate cost discipline into sustainable growth rather than just defensive profitability.