Kohl's Corporation Q2 FY2027 earnings call

• Strategic Initiatives: Focus on three pillars: curated assortment, value/quality leadership, and frictionless omni-channel experience.
• Assortment & Inventory: Reduced choice count by high-teens to improve clarity while increasing inventory depth by low-double digits. Pulled forward fall receipts to capture back-to-school demand.
• Proprietary Brands: Significant progress with brands like Sonoma, Tek Gear, and FLX. Addressed inventory constraints in Women's by accelerating fall receipts; initial results are strong.
• Sephora Partnership: Facing headwinds from expanded distribution of major brands. Investing in newness (e.g., Khloe Kardashian, Givenchy) and holiday outposts in 130 stores to drive gifting sales.
• Digital & Tech: Store Pickup now >20% of digital demand. Launched DoorDash partnership for same-day delivery. Early signals from AI shopping assistant show higher conversion and revenue per visit.
• Leadership Changes: Elliott Rodgers appointed COO; Arianne Parisi appointed Chief Customer Officer to unify marketing and digital strategy.
• Customer Sentiment: Core customer remains financially pressured by inflation. Strategy focuses on value, convenience, and inspiring in-store experiences.

Comparable sales declined 0.9% in Q2 (down 1% YTD). Store sales were down 2%, while digital sales increased 2.8%. Kohl's Card sales rose 1%. Proprietary brands grew 3%. Home was the strongest line of business with 1% growth, driven by decor and small electrics. Kids was flat, with Toys showing double-digit growth. Juniors increased 10%. Women’s moderated, finishing down 1.5%, though Intimates underperformed. Men’s improved by 100 basis points, running in line with company average. Accessories were flat overall but up mid-single digits excluding Sephora. Sephora at Kohl’s sales declined 4% due to expanded distribution of key brands.

• Raised full-year comparable sales guidance to a range of -1.5% to flat (previously lower).
• Raised adjusted operating margin guidance to 3.5% - 4.0%.
• Raised adjusted diluted EPS guidance to $1.80 - $2.40, which includes approximately $0.65 benefit from tariff refunds.
• Back-half comp expectation is flat to down 2%.
• Full-year capital expenditure expected to be $350 million - $400 million.
• Free cash flow expected to be $600 million+, driven by ~$950M-$1B operating cash flow.
• Guidance assumes no future tariff refunds.

• Macroeconomic pressures on core low-to-middle-income customers due to inflation in essentials (gas, food).
• Consumer choicefulness and discretionary spending constraints.
• Headwinds from expanded distribution of key brands in the Sephora partnership dampening top-line performance.
• Potential for persistent inflation or deflationary pressures impacting ticket prices and margins.
• Execution risks related to inventory management and ensuring trip assurance across the store fleet.

Q: Chuck Grom asked about the trajectory of the business given the rebound in Kohl's Card comps and what this implies for proprietary brands and credit revenue. / A: Jill Timm attributed the cardholder rebound to successful reintroductions of beloved categories like Jewelry and Petites, noting that these loyal customers never stopped shopping Kohl's but sought items elsewhere when unavailable. Michael Bender added that this engagement bodes well for future credit revenue, as cardholder sales are recovering faster than general top-line trends, suggesting credit revenue will improve relative to the broader business.

Q: Mark Altschwager inquired about the sales impact of inventory constraints on proprietary brands and how the trend has looked chasing into fall receipts. / A: Jill Timm noted that despite constraints, proprietary brands still grew 3%, indicating strong underlying demand. She explained that Women's specifically lagged because sell-throughs exceeded expectations early in the quarter, leaving inventory constrained. However, accelerated fall receipts for sweaters, fleece, and denim have set up the business well for the back half, with initial results exceeding expectations.

Q: Tracy Kogan asked about free cash flow expectations, capital allocation priorities between debt repayment and share buybacks, and whether current trends align with the flat-to-down 2% back-half guidance. / A: Jill Timm projected $600 million+ in free cash flow, including tariff benefits, enabling the resumption of a $100 million share repurchase program alongside opportunistic debt purchases. She stated there is no strict priority between the two, viewing them as opportunistic based on market pricing. Regarding trends, she expressed confidence that current momentum supports the back-half guidance, citing positive signs in traffic and category performance.

Q: Dana Telsey asked about consumer health, inventory planning for the back half, and specific category drivers like Home and Jewelry. / A: Michael Bender described the consumer as financially stretched but responsive to value propositions, with no significant change in sentiment expected through the holidays. Jill Timm confirmed inventory will remain down low-single digits to drive productivity. She highlighted Home's recovery in small electrics and decor as tariffs ease, and Jewelry's continued strength, particularly fashion jewelry and fine jewelry expansions, as key growth drivers for the season.

Q: Bob Drbul asked about the outlook for Sephora trends and recent traffic patterns. / A: Michael Bender explained that Sephora is in a cycle where expanded distribution of major brands is offsetting growth from newer, smaller brands. He expects this softness to persist until new brands scale, though holiday gifting initiatives may provide some lift. Jill Timm reported that traffic declined slightly, which she characterized as the best quarterly traffic performance since 2019, driven partly by increased frequency from Kohl's Cardholders.