Kohl’s Beats Expectations for Q3, Raises Guidance

KSS +9.27%

Updated 4:09 p.m. ET Nov. 25

Kohl’s Corp.’s top- and bottom-line results for the third quarter came out ahead of expectations, motivating the company to raise its full-year guidance.

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The third-quarter report and the elevated guidance catapulted Kohl’s stock price up 42 percent to $22.41 on Tuesday.

The Menomonee Falls, Wis.-based, value-oriented family chain said the results reflected progress in turnaround initiatives. Private brands, petites, fashion and fine jewelry, Sephora, opening price points and coupons are central to the chain’s strategy.

Net sales for the third quarter ended Nov. 1 decreased 2.8 percent year-over-year, to $3.4 billion, from $3.5 billion, with comparable sales down 1.7 percent.

Net income was $8 million, or 7 cents per diluted share, and adjusted net income was $11 million, or 10 cents per adjusted diluted share. This compares to net income of $22 million, or 20 cents per diluted share, in the prior year.

Operating income was $73 million compared to $98 million in the prior year. As a percentage of total revenue, operating income was 2.1 percent, a decrease of 61 basis points year-over-year. Adjusted operating income was $77 million compared to $98 million in the prior year. As a percentage of total revenue, adjusted operating income was 2.2 percent.

In an interview with WWD, Kohl’s newly appointed chief executive officer, Michael Bender, attributed the improvement to a variety of initiatives the retailer has been putting in place.

“It really goes back to what we have been talking about in terms of the initiatives we previously laid out which is everything from getting our national and proprietary brand mix right, to focusing on choice and depth,” Bender said. “It’s about getting that right balance, and also creating experiences in the stores that make the most sense. We are focused on customers and making sure we are delivering for them. They told us that if we get the product right, we will keep buying from you.”

Bender, whose promotion to CEO from interim CEO was announced Monday, said the company is seeing signs that changes in the women’s assortment are resonating with shoppers.

“We have curated a more refined assortment,” he said of the dress offering. “We have edited some areas down. The teams are much more focused on style, fit, quality and fabric and that is now resonating…Similar decisions have been made in intimates in terms of editing the assortment,” and building up brands that are being well received.

There was positive growth in juniors and petites through investments made in keyproprietary brands like Lauren Conrad, Simply Vera Vera Wang and So. And the company is leaning into other proprietary brands including FLX, Tek Gear and Apt. 9 in menswear, which helped improve the overall men’s performance. Collectively, proprietary brands grew 1 percent last quarter.

Kohl’s is also putting more attention on fine jewelry, home decor, impulse items and continuing to prioritize the Sephora beauty areas. MAC is being added to the Sephora assortment in the spring.

The store layouts have changed so juniors is better situated across from Sephora. “Juniors are staring right out at the younger customer shopping Sephora,” he said.

“We love the momentum coming out of third quarter into the fourth quarter. We are well-positioned. We have newness in categories like home, and we have a strong marketing campaign.”

Overall, “I am pleased with the progress, but not satisfied fully with the performance,” Bender said. “We have to get back to growth.” As to when that might happen, he said, “I don’t put a timeframe on that. I don’t think it’s the appropriate thing to do.”

The CEO said he was “proud” of how the company was managing its inventory with discipline, noting it’s down 5 percent last quarter, to $3.9 billion.

He’s also proud of how since he’s been in charge of Kohl’s for the past six months, the corporate culture has been changing. “We have been creating more of a collaborative environment so people have a winning attitude and a reason to believe that Kohl’s should continue to be a player in the retail landscape. At our stores, our distribution centers and with vendors, everybody wants us to win. Everybody is cheering for us.”

In other statistics released by Kohl’s:

• Cash flow provided by operating activities was $124 million compared with $195 million a year earlier.

• Gross margin totaled 39.6 percent, an increase of 51 basis points.

• Selling, general & administrative expenses decreased 2.1 percent year-over-year, to $1.3 billion. SG&A expenses totaled 35.3 percent of revenues, an increase of 55 basis points year-over-year.

“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,” said Bender in a statement Tuesday morning. “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. We are focused on building on this momentum, as we remain committed to delivering quality products, great value, and a frictionless experience to our customers in an uncertain macroeconomic environment.

“I am very proud of the work our team has accomplished to date, as we continue to operate our company with strong discipline, deliver solid cash flow generation, and maintain a healthy balance sheet,” Bender said. “This will serve as a strong foundation as we reposition Kohl’s for future growth.”

On Monday, Kohl’s promoted Bender to CEO from interim CEO.

Kohl’s raised its guidance for the full year 2025 and currently expects net sales to decline 3.5 percent to 4 percent, and comparable sales to decline 2.5 percent to 3 percent. The previous outlook called for net sales to decline 5 percent to 6 percent, and comparable sales to decline 4 percent to 5 percent.

Adjusted operating margin is now seen in the range of 3.1 percent to 3.2 percent, whereas the previous guidance called for adjusted operating margin in the range of 2.5 percent to 2.7 percent.

Adjusted diluted earnings per share is now expected in the range of $1.25 to $1.45. The previous guidance called for adjusted diluted EPS in the range of 50 cents to 80 cents.

The guidance on capital expenditures remained unchanged at approximately $400 million.

Kohl’s operates more than 1,100 stores in 49 states as well as Kohls.com and the Kohl’s app.

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