Kohls Corporation 2027 Q2 Earnings Call

Certain statements made on this call, including those regarding our projected financial results, business outlook, and future initiatives, are forward-looking statements. These statements are based on current expectations and assumptions and are subject to certain risks and uncertainties that could cause Kohl's actual results to differ materially from those projected. These risks and uncertainties include, but are not limited to, the factors described in Item 1A of Kohl's most recent annual report on Form 10-K, and as may be supplemented from time to time in Kohl's other filings with the SEC, all of which are expressly incorporated herein by reference. Forward-looking statements relate to the date initially made, and Kohl's undertakes no obligation to update them. In addition, during this call, we may refer to certain non-GAAP financial measures.

Please refer to the cautionary statement and reconciliations of these non-GAAP measures included in the investor presentation, filed as an exhibit to our Form 8-K as filed with the SEC and available on our investor relations website. Please note that this call will be recorded. However, replays of the call will not be updated. So if you are listening to a replay, it is possible that the information discussed is no longer current and Kohl's assumes no obligation to update such information. With me this morning are Michael Bender, our Chief Executive Officer, and Jill Timm, our Chief Financial Officer. I will now turn the call over to Michael.

Thank you, Trevor. Good morning, everyone, and thank you for joining us today for Kohl's second quarter 2026 earnings conference call. Our second quarter performance reflects the continued progress we are making against our key initiatives, leading to another improvement in our comparable sales trend. In addition to the top-line performance, our team demonstrated strong operational discipline. By maintaining this rigor around our expense and inventory management, we have substantially improved our balance sheet and cash flow generation. The solid financial foundation we have built over the past year is enabling us to invest in the business, drive value for our customers, and return capital to shareholders. We are operating in a challenging macroeconomic environment where our customers are experiencing persistent financial pressures from inflation in their everyday expenses, like gas and food.

While their day-to-day priorities may change, the consumer is consistently looking for value, a compelling assortment, and an inspiring experience. The work we have underway is focused on addressing each of these customer priorities. As we look to the remainder of the year, we expect this economic backdrop to continue. We believe that our healthy balance sheet will provide us meaningful support and flexibility to navigate through this environment to continue our journey of progressive improvement. Before I get into more detail, I would like to extend my sincere gratitude to our entire Kohl's team for their efforts over the past quarter. While this quarter marks another small step in the right direction, we know there is more work to be done.

Each day, we have the opportunity to show up for our customers, and I'm confident that the work we are executing is leading us in the right direction. Now, let me share some additional highlights from our performance. We are pleased to see continued positive momentum across key areas of our business throughout the second quarter. First, our loyal Kohl's Card customer showed ongoing progress and delivered a sales increase of 1% in the second quarter. Over the past year, we implemented multiple targeted actions to successfully reengage these individuals. This milestone represents the beginning of our journey, and we see further opportunities to deepen our engagement with this key customer, which represents our most productive customer base. Second, our proprietary brands increased 3% in the second quarter. Over the past year, we have made significant progress enhancing our proprietary offerings, receiving strong positive customer response.

We have driven major improvements by delivering exceptional value and increasing inventory depth by 6% to support better product availability. Third, we also made deliberate progress in transitioning our seasonal goods earlier, a strategy that drove positive sales in the spring and maintained a flat performance in Q2. Building on this, we set our fall seasonal assortment in July to effectively capitalize on the back-to-school window, which has already provided a strong start to the season. We plan to continue this proactive approach as we head into the holiday season, positioning us to capture demand early and maximize momentum throughout the remainder of the year. Next, I would like to give you an update on the progress we are making against our three key initiatives we outlined at the beginning of the year. This work is rooted in putting the customer at the center of everything we do.

Let me begin with our first initiative, offering a curated and more balanced assortment that fulfills the needs of all customers. Through enhancing assortment clarity, fulfilling customer demands, and improving product relevance, we are continuing to refine our offerings. This strategic focus enabled sales improvement across the majority of our lines of business. Home had the strongest performance this quarter, delivering sales growth of 1%. The strength in home was driven by decor and small electrics. Home decor benefited from our adjustments in merchandising efforts to deliver more choices in this category, with choice count receipts up over 10% to last year. We saw particular strength in our Americana decor as we celebrated America's 250th anniversary. As we head into the fall, we are investing into more choices for our fall and harvest decor assortment.

Small electrics continue to benefit from newness and innovation in national brands such as Shark and Ninja. We also saw strong performances from KitchenAid and GreenPan. We anticipate further opportunity in this category in the back half of the year, as we have strong receipt flow this year after being limited in our buys last year due to tariff pressures. Our bedding and bath categories were flat for the quarter, with strength coming from our proprietary brand offerings of The Big One and Mariana. We also saw solid growth in our Mingle & Co. brand within our tabletop category. Now let me move to our kids business, which was flat in the quarter. Toys continues to be strong with a double-digit sales increase led by Lego, KPop Demon Hunters, and our value towers.

To support the high-volume holiday season, we will continue driving growth in toys by expanding our inventory investment. Additionally, in Q2, we launched value-driven family fan zones featuring localized team apparel and accessories. We saw strong traction around the World Cup, and we have recently transitioned these spaces to showcase our NFL licensed products ahead of the new season. We also saw strength in our private label brands in kids. We rolled out our popular FLX brand to all stores in June, and initial results are exceeding our expectations. Our SO brand generated positive tops in the second quarter, with growth in our young girls category. In addition, Jumping Beans built momentum across the quarter, supported by the July introduction of our baby line and our ongoing emphasis on the brand's exceptional value proposition.

To build on our infant and baby apparel business, we are expanding our offering of baby gifts and accessories through our Babies Us partnership. We recently rolled out in-store fixtures across all locations to highlight our top-selling baby gifts and accessories, driving solid second quarter growth. We're also completing 56 additional Babies Us shop build-outs in September. Total accessories also outperformed the company with a flat performance versus last year. Excluding our Sephora business, accessories increased mid-single digits. This performance was driven by newness, and impulse, and jewelry. Our impulse business maintains strong momentum supported by accessible pricing and frequent product refreshes that deliver new discoverable assortment. Key drivers include trending items like NeeDoh Squishies, alongside everyday essentials such as toiletries and sunscreen. Jewelry continues its strong performance, delivering a mid-single-digit sales increase in the second quarter.

We saw strength in our boxed giftable, personalized, and sentiment themed, as well as our fashion jewelry. Building on the strength of this category, we are rolling out an additional 350 fine jewelry case lines in the fourth quarter, bringing the total store count with case lines to 549 stores. In addition, 320 stores will be receiving elevated fashion jewelry fixtures by November. These fixtures will highlight newness and inspire customers to complete their look with fashion accessories. Our Sephora at Kohl's business faced headwinds this quarter, with sales down 4%. While we continue to see strong customer demand for newness, the top-line performance was pressured by the impact of expanded distribution for several of our key brands. Breaking down the performance by category. Fragrance remained a strong driver, anchored by new brands like Dolce & Gabbana and YSL. While haircare also outperformed the company led by OUAI and Kérastase.

In makeup, we continue to see strong traction from existing brands like Charlotte Tilbury, Makeup by Mario, and Merit, as well as newness buoyed by the launch of MAC. However, this growth was dampened by declines in brands with expanded distribution. Finally, skincare had a challenging quarter as we lapped several major launches and have yet to reach scale from existing new launches in K-Beauty and Body, including brands like Salt & Stone, which is already off to a strong start. We recognize that in addition to driving our core offering, this business is also driven by newness and innovation, and we are excited about our upcoming category launches. In fragrance, we are introducing Khloé Kardashian and Givenchy, alongside expansions from Kaali and Jo Malone London. This will be supported by new fragrance towers in 250 stores this November.

In haircare, we are launching Emi Jay, Crown Affair, i.N.O., and Fromlabs, while our skincare category will debut Evereden, Topicals, and Ultra Violette. Furthermore, we're rolling out holiday outposts in 130 stores, building on our strong gifting category as our gift sets continue to resonate well with our customers. We are continuing to maximize our travel and trial assortment to attract new customers through our cue lines, maintaining a focus on delivering value. While we're excited about these actions to implement newness into our Sephora at Kohl's business, we want to be realistic in our expectations for the remainder of the year. We expect the softer performance we've seen year to date to persist until we can reach full scale with new brands, and cycle through the headwinds from expanded distribution from a few of the bigger brands. Turning to our women's business.