Kohl's CorporationKSSNYSE
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Operator: Good morning, and welcome to the Kohl's Corporation fourth quarter 2025 earnings conference call. All participants are in a listen-only mode. After the speakers' remarks, we will conduct a question-and-answer session. As a reminder, this conference call is being recorded. I would now like to turn the call over to Trevor Novotny, Director of Investor Relations. Thank you. Please go ahead. Thank you.
Trevor Novotny: 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 Corporation’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, Kohl's Corporation’s most recent Annual Report on Form 10-K, and as may be supplemented from time to time in Kohl's Corporation’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 Corporation 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 reconciliation of these non-GAAP measures included in the investor presentation filed as an exhibit to our Form 8-Ks 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of the call will not be updated, so if you are listening to a replay, it is possible that the information discussed is no longer current, and Kohl's Corporation assumes no obligation to update such information.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.
Michael Bender: Thank you, Trevor. Good morning, everyone. Thank you for joining Kohl's Corporation’s fourth quarter earnings call. Before I begin this morning, I want to express my sincere gratitude to the entire Kohl's Corporation team. 2025 was a year of substantial change and notable progress. I appreciate the way our teams adapted and committed to new ways of working. We are ending 2025 in a stronger position than we started, though important work remains ahead of us. Thank you for your continued dedication and belief in Kohl's Corporation. During this transformational time for our business, we are taking a long-term view. We take accountability for our performance each quarter, while making decisions for the long term with the understanding that progress will not be a straight line. Over the past year, our efforts have been focused on resetting our foundation. This focus is intended to stabilize the business and strengthen our operational ability to build for a stronger future. In 2025, we made meaningful progress and this aggregate work has us moving forward in the right way. While we have made progress addressing issues and strengthening areas of our foundation, that work will continue to be the focus for most of 2026. Addressing operational opportunities and modernizing our processes and ways of working is critical for what comes next for Kohl's Corporation. There are no shortcuts. We are confident that the work we are investing in now is essential to improving our business and getting back to growth. During today’s call, we would like to discuss three items with you. First, we will review our fourth quarter performance. Next, I will provide an update on how we will execute against our key initiatives in 2026, and lastly, Jill will give more details on our Q4 financial performance as well as give guidance to 2026. Although we are not pleased with our top-line results in the fourth quarter, as comparable sales decelerated to down 2.8%, we are pleased with our strong inventory discipline and expense management helping to deliver diluted earnings per share of $1.07, well ahead of last year. We also strengthened our balance sheet, ending the year in a strong cash position with no borrowings on our revolver. While not the primary driver of these sales results, severe weather was responsible for about 70 basis points to our comparable sales decline as approximately half of our stores were closed during the winter storms toward January. Beyond the impact of winter storms, we have identified two primary factors impacting our Q4 top-line results. First, we have an opportunity to better execute our fall seasonal business. The softness in this category uncovered some operational opportunities for us regarding our inventory depth and allocation. We did not consistently have the right product in the right quantity in the right places. This issue was outsized in our smaller format stores which meant we were not consistently able to meet the demand in key moments. However, we continued to experience positive growth in our year-round businesses including the emphasis on core basics and essentials, which were not impacted by inventory allocation issues. Second, we needed to offer breakthrough pricing during our key holiday shopping periods to drive more excitement for customers to choose Kohl's Corporation. During the fourth quarter, we lost some competitive ground during high-traffic shopping windows, including Black Friday, Cyber Monday, and the week following Christmas. We know consumers are more value conscious and there is opportunity for us to regain share during these windows through strong promotional statements that better align to our customer needs and priorities. Consistent and differentiated value statements across marketing, in-store, and online will be a catalyst to improve our performance. While acknowledging and addressing these issues from Q4, we remain committed to the path we are on to improve the business. This year, we made significant progress resulting in a 300 basis point improvement in our comparable sales from last year. There were a number of areas that drove progress this year, beginning with our Kohl's card customer who improved 120 basis points from the third quarter, now running down mid-single digits. While this performance is not where we ultimately want it to be, we are encouraged by the significant progress we have made from the first half of the year, where these shoppers declined in the mid-teens. The re-engagement of this shopper is instrumental to Kohl's Corporation’s long-term success as they are the most productive customer we serve. Additionally, we remain pleased with the performance of our non-Kohl's card customers and new customer acquisition. Overall, we are proud of the progress we have made toward re-engaging our Kohl's card customers while continuing to attract and serve new customers. Next, we have made solid progress across our proprietary brand portfolio. Although these brands were down 3% overall in the quarter, our proprietary apparel was flat with the decline primarily driven by our home business. Our juniors business, which grew 8% in the quarter, continues to benefit from investments in our proprietary brand, SO. We are furthest along in our progress with this category as it has faster turns and shorter lead times. We are excited about taking this momentum from the juniors business and expanding the efforts throughout the remainder of the women's category. Petites is another area within women's that continued its great momentum, running up 26% to last year. This category benefited from the in-store presence we built with key proprietary brands LC Lauren Conrad and Simply Vera Vera Wang. Our men's and kids departments also showed strength in proprietary brands, both running positive comps in the fourth quarter. This strength was driven by brands like FLX, Tek Gear, Jumping Beans, and Apartment 9. Our home business underperformed largely due to softness in seasonal decor, particularly within our proprietary brands. We bought too deep, which limited customer choice for the various holiday celebrations. We also have an opportunity to be more competitive by offering better value through sharper price points in key seasonal items. Moving to the remaining lines of business, our accessories business continues to outperform. Our Sephora business grew 2% with comparable sales improving to flat in Q4. This was driven by our expanded holiday gifting sets and continued strength in our fragrance and hair care categories led by brands such as YSL, Valentino, and Paioli. Excluding Sephora, our accessories business increased low single digits led by the expansion of Impulse to nearly all doors in Q3 helping deliver over a 40% comparable sales increase versus last year. We also saw positive performance in our jewelry business with strength in our fashion and bridge jewelry. Our footwear business underperformed the company due to softness in active footwear and boots. We expected our boots business to remain soft in the fourth quarter and proactively reduced our buys based on pricing expectations. The strength in dress and casual footwear across men's and women's businesses partially offset this category softness. Beyond our category performance, it is also important to acknowledge that the consumer is behaving differently in this challenging macroeconomic environment. We know our core low- to middle-income customers continue to face financial pressure and they are seeking value. As we expect this customer behavior to persist, we are adapting our strategies to ensure we are delivering great value to better serve this customer. We have taken immediate action to address the opportunities and to build upon our strengths. As we move into 2026, we will continue to work on our key initiatives. This work is essential for setting up Kohl's Corporation for long-term success and will take time. In 2026, we are committed to continuing the progress we laid out in 2025 and have clear, actionable insights that we can build on. Starting with our first initiative, offering a curated and more balanced assortment that fulfills the needs across all our customers. As we work through our merchandise strategies, our goal is to invest in key styles and categories while reducing redundancy to ensure we have a purpose behind each product and brand. By exiting out of unproductive styles and offerings, we can reinvest into higher turning items to drive a more balanced assortment. In our apparel businesses, we are focused on increasing our investment into our basics, while also right-sizing our assortment offering in trending categories. By strengthening our core apparel business category, we ensure that our customers can consistently rely on us for the essential, high-quality items they need for daily life. In addition to our core business, we continue to find ways to curate our assortment into more fashion and relevant categories such as denim, dress, and activewear. In our women's business, we are broadening our denim assortment with more styles and fit through our key national partners such as Levi's and enhancing proprietary brands such as LC Lauren Conrad and Sonoma. Additionally, we will build on the momentum in juniors by introducing the Office Edit by SO to provide a new compelling assortment in the casual and dress categories. For our men's business, we are investing in the key item programs within proprietary brands such as Tek Gear and Sonoma, and we will expand upon successful brands like FLX with our new offerings of FLX Golf, premium pant, and fleece. In our kids business, we will differentiate with our proprietary brands by introducing merchandising statements and an expanded assortment of under $10 entry price points in SO and Sonoma. We will also expand key brands like Jumping Beans into Baby and FLX Kids to all stores by Q2. Last, we recently launched our new proprietary tween brand, Sea and Sky, in Q1. We are driving the next phase of growth in our Sephora at Kohl's Corporation business by strategically curating an exciting assortment. We successfully launched MAC, a leading makeup brand, in over 850 of our Sephora at Kohl's Corporation stores this month. This launch immediately delivers enhanced newness and a strong value proposition to our customers. Recognizing that newness is vital in the beauty industry, we are also preparing to expand assortment with proven brands like Tarte and Charlotte Tilbury. Additionally, we see further opportunity in 2026 to build on the successful launch of our Impulse initiative. Following the rollout of an Impulse queue line in nearly all of our stores, we have identified more ways to inspire our customers and drive highly incremental, impulsive shopping behaviors. To capitalize on this, we are implementing the Deal Bar and an Impulse toy tower, both of which are specifically designed to offer compelling value on items like seasonal home decor and trending toys with all products priced under $10. We are excited to roll out these offerings this spring to maximize key seasonal moments including Valentine's Day, Easter, and Mother's Day. In footwear, as we transition to spring, we expect our dress, casual, and active categories to gain momentum. We are focused on improving our inventory position and reducing overall choice to deliver better clarity on the sales floor while ensuring greater depth in key styles our customers are seeking. And lastly, in our home category, we will deliver more value through our investment into key proprietary brands such as The Big One, while simultaneously growing newly launched brands such as Mariana, Hotelier, and Mingle & Co. In addition, we will leverage key national brand partners who continue to deliver newness and innovation, including brands like Shark and Ninja. And finally, we are taking immediate action to recapture our seasonal decor business through offering greater customer choice and sharper price points on key items. Our second initiative is our focus on reestablishing Kohl's Corporation as a leader in value and quality. Value continues to be a focus and is especially important given the macroeconomic uncertainty. The majority of our customers are low to middle income. These consumers have been consistently under pressure and are being thoughtful with how they are spending their discretionary income. It is clear that when we offer value, it resonates with this customer. Kohl's Corporation has an opportunity to deliver more consistent, competitive value to all of our customers. In 2025, we took important initial steps to enhance our promotional strategies and increase brand eligibility in our coupons. These actions proved to be a critical first step, resulting in an improved trend particularly among our Kohl's card and loyalty customers. In 2026, our focus remains on building upon the momentum we have established and deepening our commitment to delivering undeniable value to every customer. We are executing a strategy that includes simplifying our promotional statements and deploying more personalized real-time offers. This allows us to be more targeted, rewarding our most loyal and deal-savvy customers while ensuring a compelling value breaks through to a broader customer base. We are also making meaningful investments to amplify our proprietary opening price point brands, which provide exceptional quality at an accessible price. These strategic adjustments will strengthen our competitive position and ensure we deliver incredible value to all customers. A key element of Kohl's Corporation’s value proposition is the power of our high-quality proprietary brands. This year, we are committed to increasing our investment into proprietary brands’ inventory, marketing, and experience. In the women's business, we are excited about the work we are doing to key proprietary brands, LC Lauren Conrad and Tek Gear. In stores, we are elevating the experience to improve findability and inspire our customers. To achieve this, we are adding improved signage for better wayfinding, highlighting key styles with mannequins, and adding “find your fit” communication to better help customers find the product and fit they desire. This experience will be completed with our LC Lauren Conrad brand in Q1, and we will complete the Tek Gear experience in Q2. We are also excited to build off the momentum of another strong proprietary brand in FLX. Last fall, we introduced FLX to our kids category in 300 stores. Currently, we have expanded this to 600 stores in Q1 and expect it to be rolled out in all stores by Q2. In addition to the investment we are making into our proprietary brands’ inventory and experience, we will be supporting them with a new marketing campaign celebrating our “By Kohl's” brands. The “By Kohl's” campaign will put a spotlight on the great brands that customers can find only at Kohl's Corporation. We will focus on several “By Kohl's” brands by highlighting style, quality, fit, and aesthetic. To accomplish this, we will be leveraging our Kohl's mom this spring, utilizing a strong cross-channel campaign, including fun social content, TV, and digital video. We are also creating a landing page on our website and app to better highlight the proprietary brands to our customers. And lastly, our third initiative is delivering a frictionless experience across our omnichannel platforms. A frictionless experience starts with reestablishing trip assurance for our customers. To address this, we are making deliberate changes to both our planning and supply chain process. Specifically, we are committed to investing in depth with plans to increase it in the high single digits while simultaneously curating our choice counts for greater clarity and relevancy. This strategy includes protecting our replenishment receipts and heightening our in-stock levels, all while improving inventory turn to ensure the freshness of receipts. These adjustments are designed to ensure that the right product, with sufficient depth, is available at the optimal time across all our stores. Encouragingly, we are already yielding positive results from the implementation of some of these disciplines. We successfully executed a substantially smoother transition of our spring receipts heading into 2026. Our spring seasonal categories have started strong. To complement our investments in clarity and depth, we are focused on delivering a more consistent shopping experience through improved inventory allocation, which directly strengthens our omnichannel performance. By increasing inventory depth and improving in-stock levels, we are better positioned to leverage our store-enabled fulfillment tools such as BOPIS and BOSS. These omnichannel options provide our customers with greater speed and convenience while allowing us to utilize our ship-from-store capabilities more efficiently. We will continue to refine these tools to ensure a frictionless and reliable experience across all touch points, regardless of how or where our customers choose to shop. In addition to stores, we have an opportunity to modernize our capabilities and enhance our digital experience. We are focused on delivering a better experience and deeper connections through advanced personalization and contextual relevance, making every interaction with Kohl's Corporation more meaningful for the customer. We are enhancing our omnichannel capabilities across all digital touch points such as search, findability, and availability, as well as elevating our store-enabled services as key differentiators to maximize convenience and create the seamless, integrated shopping experience. And last, we are actively modernizing our site structure and foundational data architecture. This ensures our digital ecosystem is discoverable, high-performing, and fully prepared for a future driven by AI and agent technology. Now before I hand the call over to Jill, I would like to reinforce my perspective on the year. We have made meaningful progress in strengthening our foundation. I am confident that we are on the right path. While our fourth quarter results presented clear opportunities, we have already taken immediate action and are poised to build upon the strengths we have established. We are leaving 2025 in a measurably stronger position than when we entered it, and we are unwavering in our commitment to driving continued progressive improvements throughout 2026. I will now turn the call over to Jill.
Jill Timm: For today’s call, I will provide additional details on our fourth quarter results and outline our fiscal year 2026 guidance. Net sales declined 3.9% in the quarter and 4% for the year. Comparable sales declined 2.8% in Q4 and declined 3.1% for the year. The decline was primarily driven by a decrease of transactions, specifically in stores. Store sales declined mid-single digits for both the fourth quarter and the full year, primarily due to a decline in transactions. Additionally, as Michael noted, our stores experienced a negative impact in January due to unforeseen weather conditions. Digital sales grew low single digits in the fourth quarter and were flat for the year. This performance was primarily driven by higher traffic, offset by lower conversion. We are pleased to have established a critical point of stability, ending the year flat. However, our goal was to drive more substantial growth in Q4, following the headwinds of the previous year. Our digital business has a higher penetration of our Kohl's charge customer, and although we are seeing improvement in this customer’s performance, it is still down mid-single digits, pressuring our digital business. In addition, we need to further elevate conversion through better availability and findability, which are being addressed through the inventory strategies Michael outlined. Moving down the P&L, Other Revenue, which consists primarily of our credit business, declined 9% to last year in Q4, an improvement from the third quarter driven by better Kohl's card performance. For the full year, Other Revenue declined 10%. As a reminder, at the beginning of the year, we shifted certain credit-related expenses from SG&A against our Other Revenue line. For the upcoming year, we will lap this adjustment so our Other Revenue should normalize and reflect the relative performance of our Kohl's charge customers. Gross margin in Q4 expanded by 25 basis points to 33.1% of sales. This expansion was driven by continued strong inventory management resulting in lower clearance markdowns. This was partially offset by increased cost of shipping as our digital penetration increased 220 basis points to 35% of total sales for the quarter. For the full year, our gross margin expanded by 34 basis points to 37.5% of sales. SG&A expenses decreased $76 million, or 4.9%, in Q4. Excluding the shift of credit-related expenses, SG&A declined 4.1%. The decrease in SG&A was driven by lower store, marketing, and fulfillment-related expenses. For the year, SG&A expenses decreased 4.1%, and excluding the shift of credit-related expenses, SG&A declined 2.8%. Depreciation expense was $174 million in Q4, a decrease of $9 million. For the year, depreciation declined $43 million to $700 million. The decline was mainly driven by closures of stores and one of our e-commerce fulfillment centers last year. Interest expense was $59 million in the fourth quarter and $288 million for 2025. This was a reduction of $15 million for the quarter and $31 million for the full year. The decrease was a result of the execution of an open market debt repurchase at a discount of $11 million in the fourth quarter and lower utilization of the revolver throughout the year. Our tax rate was 18% in Q4 and an adjusted tax rate of 16% for the full year. Adjusted net income in the fourth quarter was $125 million, resulting in adjusted diluted earnings per share of $1.07. Adjusted net income for 2025 was $186 million, or adjusted diluted earnings per share of $1.62. Moving on to the balance sheet and cash flow, we ended the year with $674 million of cash and cash equivalents, an increase of $540 million from 2024. Inventory decreased approximately 7% compared to last year. Our disciplined inventory management has enabled the more timely flow of transitional receipts, positioning us with stronger, fresher spring inventory as we enter 2026. Operating cash flow was $750 million in Q4 and $1.4 billion for the full year, a $700 million increase from 2024. Our capital expenditures were $64 million in Q4 and $372 million for the year. In addition, we achieved our goal of fully exiting the revolver with no borrowings at the end of the year, and we further deleveraged our balance sheet by buying back $87 million of long-term debt at a discount to par value during the quarter. In 2025, we returned $50 million to shareholders through our quarterly dividend. As previously disclosed, the Board, on February 25, declared a quarterly cash dividend of $0.125 per share payable to shareholders on April 1. Now let me provide details on our outlook for 2026. We believe the actions we are taking as well as the strategic initiatives laid out by Michael will allow us to continue making progressive improvements for the business in 2026. Our outlook reflects our confidence in our ability to execute against these initiatives with great discipline while considering the uncertain macroeconomic environment we continue to operate in. We remain cautious as our core low- to middle-income customers remain choiceful with discretionary spending. Our outlook for 2026 is as follows. For the full year, we currently expect net sales and comparable sales to be in the range of a 2% decrease to flat versus 2025, operating margins to be in the range of 2.8% to 3.4%, and earnings per share to be in the range of $1.00 to $1.60 per share. Now let me share some additional guidance details. We expect Other Revenue to be down 4% to 6%. The decrease is due to lower accounts receivable balances driven by sales underperformance in 2025 by our credit customer. Gross margin to be flat to down slightly, driven by increased proprietary brand sales offset by an increase in digital sales and promotional offers as we drive more value for our customers. SG&A dollars to be in the range of down 0.5% to down 1.5%. These savings will be driven by lower store payroll, marketing, and supply chain costs. Depreciation and amortization of $700 million, interest expense of $285 million, and a tax rate of 22%. We will continue to manage inventory tightly and expect inventory to be down low- to mid-single digits, and capital expenditures to be in the range of $350 million to $400 million. As we anticipate the new initiatives to take time to have an impact, we expect sales to build throughout the year. And although we are pleased with our start to Q1, specifically in our spring, seasonal, and year-round businesses, there is a lot of quarters still ahead of us. We expect Q1 comparable sales to be down low single digits with the remaining metrics balanced by quarter. We will now open for questions. As a reminder, to ask a question, please press star followed by the number 1 on your telephone keypad. Our first question comes from Charles P. Grom from Gordon Haskett. Please go ahead. Your line is open.
Charles P. Grom: Thanks very much. Can you just talk about the “By Kohl's” campaign that you are going to launch this spring, what it is going to involve, and then laterally, what is your expectation for comps in 2026 amongst your Kohl's cardholder given the recent improvement that you saw in the back half of 2025?
Michael Bender: Maybe I will take the first half of the question, Charles, and Jill can handle the second part. As far as the “By Kohl's” campaign, we have actually launched that already, and it is a continuation of our effort to make sure that the power of our proprietary brand portfolio is showcased and emphasized. So there is a marketing element to it that brings some of our most important proprietary brands together like FLX and others. It is also an opportunity for us to continue down the path, as we have been talking to you over the last three to four quarters, about the importance of the proprietary brand portfolio to our customers in general, but in particular to those that are Kohl's card-carrying members. It is a mouthful, sorry. And so it is an important next step for us to be able to showcase those brands in a way that elevates them and allows us to tell stories in an inclusive manner across both of our platforms of stores as well as digital.
Jill Timm: In terms of the Kohl's charge holder, you know, obviously, it has continued to lag our performance this year, but showed stepped improvement from down mid-teens to down single digits at the end of the year. I would expect this to continue to improve based on a lot of the efforts that we are putting forth. First, they do over-penetrate in proprietary brands, so as we are making that investment back into those brands, it has resonated with that customer, one, because it provides incredible value. It is opening price point. We also need to restore the trip assurance with this customer, so investing back into depth will help with that as well, so when they come in they can find what they are looking for. A couple other key things that we have done is the coupon eligibility resonated with this customer as well as, as we have bought back into jewelry and petites. So I think you are going to see a build in this customer. It will probably still lag in the front half of the year. I think it will catch up in the back half of the year. The good news is our non-Kohl's charge customer has been running positive, and we continue to see new customer acquisition up as well. So those are definitely driving our business. We just need to get this customer back into parity with our comps, and I think that will happen more in the back half of the year as some of these new strategies start resonating more with that customer.
Charles P. Grom: Okay. Great. And then just on the credit revenue line, you are guiding down 4% to 6%. Is there any geographical shift across the P&L that is happening? Or just maybe explain why you expect it to be down? And then just bigger picture, is there a way to size up how much of an impact the shift away from your proprietary brands over the past handful of years has actually had on your credit business given that I believe that the cardholders likely over-index to owned brands versus nationals? Just trying to understand the implications on some from credit because of the shift away from mix in recent years, and I guess the opportunity that that indirectly presents.
Jill Timm: Yeah. I would say it is going to lag, so that is why we are down and lagging from a sales perspective. We are coming into the year with less accounts receivable, which is what really generates that interest revenue and the late fee revenue for us. So it is always going to lag. You make your purchase in month one. We do not start billing you till 30 days later. You do not start getting accrued into interest for 30 days, and then it really builds and accumulates. So it is always going to lag top line just given the lag of those purchases. I would agree. As we move into proprietary brands, they definitely over-penetrate into that category. We were really void of an opening price point in our store over the last couple years because we had not invested into proprietary brands, and this customer was finding that value elsewhere. The good news is she continued to shop us. We just got less frequency from this customer. So as we brought back coupons, we have brought back proprietary brands, we are starting to see that reaction to our customer, which is really what is driving that 120 basis point improvement in that comp from Q3 to Q4 and really moving from down mid-teens to down single digits by the end of the year. So big improvement. We continue to expect to see improvement, but it will lag on that credit revenue line just because of how the interest and late fees accrue the balances.
Michael Bender: Got it.
Charles P. Grom: Thanks a lot.
Operator: Our next question comes from Mark R. Altschwager from Baird. Please go ahead. Your line is open.
Mark R. Altschwager: Thank you. Good morning. Michael, you outlined several initiatives today. Which of these do you view as the most immediate catalyst for recapturing market share in 2026? Furthermore, how should we think about the scaling here, where these assortment pivots and other initiatives provide enough lift to drive a return to comp growth?
Michael Bender: Yes. Thanks for the question, Mark. I would say, just carrying on Jill’s comment around proprietary brands, that has been a significant focus for us in the past, call it, eight to nine months or so in terms of restoring what we believe to be the proper balance. Again, we are not targeting a specific number that we are looking for from a mix perspective, but proprietary brands, for a number of different reasons, are really a focus for us in bringing and restoring the activity that we need with our customer. Jill mentioned the importance of the Kohl's credit card-carrying customer. They index heavily toward proprietary brands, so that will be a big focus for us. I think also beyond that, making sure that the continuation of the brands that we will be pushing forward, both national as well as proprietary, will be a big part of that. Our focus right now also is on making sure that we provide, I will say, maximum value to our customers. And so you are seeing us offer more in the way of, call it, $10 and under items. So look at toys as an example. We have a toy tower that we are rolling out to stores that has price points $4.99, $7.99, $9.99. Then the Deal Bar, which we have recently rolled out as well, which, if you walk into the entry of our store, provides another impulse opportunity and a pickup for customers, beyond what you can see as you are checking out in our queue line. So those are just a couple of examples of where we are focused right now. And more to come.
Mark R. Altschwager: Thank you. And Jill, to follow up on the EBIT margin guidance, calling for about 50 basis points of compression at the low end. What specific headwinds are captured in that lower end, that 2.8% floor? What are you incorporating in terms of changes to tariff rates, if any, and just any further color you can provide on the expected cadence for the year on EBIT margin would be helpful.
Jill Timm: Yeah. I think the biggest thing from an EBIT is on the down two it is just harder to leverage our SG&A costs just given the fixed-cost nature of our business. So I think we have done a really incredibly good job of bringing down our expenses over the last couple of years. We will continue to operate with that discipline into 2026 as well, but I think it just puts pressure on the EBIT expansion. Obviously, at flat, we are expanding the margin. So I think that shows our discipline in terms of how we are managing expenses, that we are able to have some expansion on the top end of the guidance. From a margin perspective, I think we have managed our tariffs incredibly well. We have actually offset that. So I do want to give a shout out to our sourcing and buying teams on how they have managed this dynamic environment in terms of still being able to expand our margin this year by over 30 basis points and 25 basis points in the fourth quarter. Next year, really, we are going to manage it the same way. So we think we have the right mitigation tactics to manage through tariffs. The big thing that we want to make sure that we are going after is value. We know we serve the middle- to lower-income customer. We know they have to be choiceful with their discretionary spend. And so a lot of what we are talking about today is how we can stand for value, whether that be through our proprietary brand portfolio, through the price points that Michael indicated with the $10 and under, also making sure that we are going to be able to break through with our promotional values as well. We want to give ourselves some room to be able to do that. We know our proprietary brand will be a tailwind in the mix as we definitely move more into sales there. But we also see digital as a growth opportunity. We were happy to get to a point of stability and putting a flat comp for the year, but we really think this can be a growth engine for us as well into 2026, which will then add some pressure to margin. So those are kind of some puts and takes. So margin, I would say, is not going to be a driver of the EBIT expansion, but rather it is going to be around our expense management and then obviously getting to that flat comp allows you to expand it on the top end.
Michael Bender: Thank you.
Operator: Our next question comes from Robert Drbul from BTIG. Please go ahead. Your line is open.
Robert Drbul: Just a couple of questions from me. On the women's business, as you think about this year and I think the progress that you made last year, where are the biggest opportunities ahead? And I guess on the same line of questioning would be just in home, I think you think about what you have learned sort of Q4 in home, soft home, tabletop. Can you just talk through that category as well? And just curious on sort of online versus in-store, how you would merchandise that category? Thanks.
Jill Timm: Sure. So from a women's perspective, I would say one big callout is juniors, Robert. It was up 8%, really seeing momentum behind our SO proprietary brand. Which, as you know, juniors is our fastest-turning business. We are probably the most mature in that curve in terms of how we went after our proprietary brand portfolio. So I think that is kind of the litmus test for us and really what we are going to continue to chase after, and that is where women's will continue to lead to. I think there are a couple of opportunities if I think about women's. We are in a denim cycle. So you are going to see us leaning into our proprietary brands LC Lauren Conrad and Sonoma, but also great national brand partners like Levi's. So that is going to be coming to life in our store as well. We know we had a little bit too many choices on our floor, so they are really going to be curating that assortment and putting more depth in so we can be in stock on those basics that we need. We went a little too far, I think, this year into core knits and sweaters, so we know we have an opportunity to curate that better as we get to the back half of the year. I am really excited about our spring seasonal selling. A lot of the changes that we learned from our missteps in fall seasonal, we have corrected, and we are starting to see that momentum as we called out with our spring seasonal businesses, which will only grow in volume as we move into March and April. So we are excited about that opportunity in front of us. So I think that women's really has the right formula from a juniors perspective, and they are going to continue to follow that as we move into the new year. From a home perspective, I think what we learned there was on seasonal decor, people like more choices. And so we went a little too deep in some categories. And we needed to give more choices from that perspective. So they have already corrected from that. We will move into it. So we know as we go into next year, do not go too deep on the Santa Claus and snowman, but have a little bit more array from a choice perspective and then having sharp price points. And so as we think about where we can add more value, particularly as we get into that seasonal business, that is where we will go. So we have a couple of places along the way. We did some small testing in Valentine's Day. See Mother's Day, Father's Day. So we have some moments to make sure we get it right before the big holiday season, but we feel good with the progress that that team has made and the steps they have already taken to correct what we saw during the holiday season.
Robert Drbul: I guess, and if I could just ask a follow-up, which would be on the marketing expense, when you think about sort of how you are approaching reengaging with some of your credit customers, but also noncredit customers. Where did you end up in marketing, and can you just talk through the plans for 2026 in terms of, you know, leverage, not leverage, in terms of how much you are going to spend? Thanks.
Jill Timm: Sure. I think marketing this year, we end up close to a similar ADAS as last year. Kinda that is my metric for how I look at the productivity. What I would say is we always look at opportunities. That team has done an amazing job of finding productivity and making our working media work harder for us. So it has been a way for us to save some money. However, we spend a lot of time with our Chief Marketing Officer about where and how we can invest back into drive sales. So if we see opportunities, we are definitely making those investments and making sure we get the return back off of the money. So even though there is some savings, I think if you look at that productivity factor, you will see it is pretty in line with where we have been. And it is a place that, if you look at versus where we plan to be, we will tend to invest back into because we know we can get the sales, particularly in digital. It is a very easy way for us to invest in, get some search terms, get some paid traffic in moving our digital business forward, and getting really good ROI out of it. So I think we have a very good system in terms of how we measure marketing, then how we make those investments to make sure we are getting the return back from an organization perspective.
Michael Bender: Great. Thank you very much.
Operator: Our next question comes from Dana Telsey from Telsey Group. Please go ahead. Your line is open.
Dana Telsey: I know you have a very store base related to profitability. How are you thinking of openings and closings this year? And the small-store boxes? What is the game plan and remodels? And then, Michael, as you talked about the initiatives for top line growth, how do you see the framework of the store changing either by category, obviously at the impulse lanes? What does footwear and active mean for you this year? Thank you.
Michael Bender: So I will try to take some of those questions. Thanks, Dana. The question around stores, and we have talked about this before, I think we have a store base of 1,150 stores roughly. The vast majority, well over 90%, are profitable. And as we look at that store base on an annual basis, we will continue, from a hygiene perspective, to make sure that we believe that those stores are positioned in the right spot and delivering what we need. So I would not anticipate any sort of grand plan of saying we are taking stores out or adding stores at this point. The focus for us is actually on optimizing what we already have, and we will be focused on making sure that we continue to push the stores’ productivity as far as we can going forward. We will look at stores like we do on an annual basis, like I said, and to the extent that there are opportunities for us to either relocate, those are opportunities for us. We can do that. But no major change in the store base expectation at this point.
Jill Timm: I think, if footwear’s doing well from a dress casual perspective, we are seeing some green shoots there, particularly, like, in sandals. We knew boots was going to be tough. We bought that down just given the exposure to tariffs in that category. So that was an anticipated piece. I think the big piece of it for us, as you mentioned from an active perspective, is getting innovation and some movement from an innovation perspective in the footwear business. We have been working really closely with our top three partners. I think we do expect to see some momentum build in that category throughout the year, but I would say we would probably be set better from that perspective for back-to-school into fall, just because of the change that it does take to get there. So I would say, from a footwear perspective, I expect it to probably lag the front half of the year, but by the back half of the year, get back into parity from a comp perspective, just given we do have a big active footwear business and that will take some time to bring that innovation through from that perspective. And then in terms of, I think, your last question, if I wrote it down correctly, was the top-line framework for store changes. I think, you know, we have made some big changes in the last couple years. Obviously, Sephora coming in was a big moment for us. We had some missteps with the jewelry, so bringing jewelry back in, showing that and showcasing that, having accessories have a home behind the Sephora pad, and moving juniors back to the front of the store were some big showcases that we had in 2025. Clearly, putting juniors in the front was working. That cross-shopability with Sephora had persisted and been consistent for us, which is a good thing. Impulse lines and queueing lines have come in. We now have that in all stores, which we finalized at the end of the year. So that was a white space opportunity for us. And you are now going to see gifting zones as well, and those are going to be with the $10 price points. You are going to have more table towers, whether that be impulse, gift deals, and also in toys. And then we did some in-store showcases of our brands. So you will see, if you come in, we are showing more around Lauren Conrad. So you are going to have elevated signing, mannequins, really a much more curated assortment. That should be in stores now. And then Tek Gear will be the secondary brand that we are going to be supporting as well to showcase it. So investing in the proprietary inventory. We are investing in the marketing to build awareness, and we are investing in the in-store experience, as well as you are going to see it on our digital experience as well for the customers to showcase those brands. So really putting our effort behind growing back those proprietary brands which, as we know, provide incredible value and also resonate with that core loyal customer of ours as well.
Michael Bender: And, Dana, just to add on to what Jill was saying, what you are hearing her talk about is trying to bring some fun and excitement back to particularly the store environment. So we talked to you before about the storytelling nature of—and what is important in being able to not only curate the right assortment, which is what our customers are asking for, but also do some storytelling. So whether it is the use of mannequins, the way we position an LC Lauren Conrad brand, like Jill just mentioned, in our stores, those are all important aspects of us being able to actually bring some fun back to the Kohl's Corporation environment and make sure that what we are offering is not just an item at a price but also a story around it, so that whether it is the entire outfit that we can display and talk to from a mannequin standpoint, those are the kind of things that are important for us that we think will help enhance the experience in-store for our customers as they engage with us. And then similarly online as well, telling that same story so there is a pull-through of that thread all the way through the experience that a customer can have where they want to engage with us online or in-store or all the different versions in between, like BOPIS and the rest.
Operator: Our next question comes from Oliver Chen from TD Cowen. Please go ahead. Your line is open.
Oliver Chen: Hi, Michael and Jill. Regarding trip assurance, what is the timing of that happening? And there are some things you can do sooner you have been doing than making happen. But how does it phase in quarterly? And as we also model Other Income, should we know about the comparisons and drivers throughout the year, as in profitability? Your company is quite sensitive to that line. It sounds like a lot is under your control, but what could be risk factors to the upside and downside on Other Income for us to consider? And third, you have been on an inventory management journey for many, many years. I think it is different now, but what is different in terms of breadth versus depth? It sounds like there are some decisions that were made that were self issues in terms of what you are choosing to do with basics and others. Thank you.
Michael Bender: Yeah. So on the trip assurance question, Oliver, what I would tell you is that that work is well underway, and we have been focusing on that in large part in 2025 and it will continue into 2026 as well. The whole focus there is our customers count on us to actually have what they are looking for, whether it is online or in-store, particularly in-store. And what we have been doing is curating the assortment to the point where we have the appropriate level of choice and in many cases that means reducing the choice offerings that we have but at the same time actually going deeper on that so that, particularly in the basics area, and that work will continue. Our teams, collectively across the organization, have been working diligently on that over the last several months, and we feel like we are making good progress in that area. Jill, do you want to talk about the income?
Jill Timm: Sure. I think when you reference Other Income, you are referencing the Other Revenue, Oliver. But it is going to be about our credit sales, and I think, you know, that is where it is going to ebb and flow. So as I mentioned, coming out of this year we have a lower accounts receivable balance just because it has been lagging. We need to build that back. So the guide of down 4% to down 6% will lag the comp just because of the ways that that build happens, the way that it revolves, and it generates that revenue. So I would say, you know, we are staying down flat to down two. We know our credit card customer needs to continue to improve. I think, you know, we can see that improvement more in the back half of the year, but it will still cause a lag on the Other Revenue line. So I think if you kind of look at that spread that we gave you, it is probably a good spread to use as we move into the current year. There are no reclassifications, so it is very pure this year. So it should be an easier way for you to be able to model that.
Oliver Chen: Has been a great new recruitment tool. What is your latest thinking on the best adjacencies next to that, and where are we given that there are lots of nice conversion opportunities? And lastly, Michael, this is simple but hard, but what do you think it takes to positive comp in stores? Like, there are a lot of great things happening, but what is your visibility or your thoughts on which ones will be the critical drivers just to get back to positive comps on multiple years of negative comps? Thank you.
Michael Bender: Sure. On the Sephora question, we feel very good about the partnership there. In terms of the adjacencies, you know, we have moved juniors across from Sephora. So we feel like that was a positive move and is paying dividends for us in terms of a customer coming in for a Sephora purchase and then turning out and seeing what is available. That is a younger, oftentimes more diverse, more digitally savvy customer that comes in to shop for Sephora, and we want to make sure that the product that they see outside of the Sephora portion of the store is consistent with what they are looking for, and that move with juniors has been a big part of that. As far as getting back to growth, I do not want to pinpoint a date and a time to say it is going to happen. But the kinds of things that we are doing in terms of the progression that we have been on over the past year in particular, but over the last couple of years, I would say, are, I think, indicative of the progress that we are making. We have mentioned proprietary brands. We have mentioned the culling of the assortment. Those are all things that we think are right. I talk to the team all the time here about—I use the analogy—that we have got to get the product right, because that is what people ultimately come for. Experience and all the other things that are wrapped around it are important as well, and we are working on those as well. But we have got to get the product right to make sure that that is what the customer continues to come back around for. So we will continue to focus on building that space to get back to growth eventually. What I would tell you is that if you look at the progression that this organization has been on over the last, call it, a couple years, we had a negative 6 comp two years ago. We produced a minus 3 comp this past year in 2025. We are giving you guidance, as Jill mentioned in her commentary, of being flat to down 2. We came out of the fourth quarter roughly around a 2% if you back out the weather impact of the 70 basis points that we mentioned. And so we are guiding on the low end of where we are already performing. And if you build these capabilities on top of that, that is what we believe will get at least back to flat. And we have the ambition, obviously, to get back to growth through this eventually. And that is what the aim is. We understand that that is the lifeblood of any business, to grow. But we also want to be measured and disciplined in the way that we get there, particularly against the backdrop of the environment that we are operating in from an economic standpoint.
Oliver Chen: Thanks for those details. Appreciate it. Best regards.
Operator: Our last question today comes from Michael Binetti from Evercore. Please go ahead. Your line is open.
Michael Binetti: Hey, guys. Thanks for all the detail here. Just on the comps, Jill, you suggested, you know, that we would be building to the flat to down 2% through the year. Maybe just a thought on trying to connect that to your comment on first quarter. Sounds like seasonal goods and some of the holiday decor was the headwind in fourth quarter, but the decor was stronger if the spring seasonals are getting better and the core was stable. How should we think—I am trying to think about trends in first quarter relative to the negative two to flat for the year. And then I am also curious. It sounds like, you know, with the coupon and shifting to expanding the coupon a little bit deeper, as you said, shifting to more of the entry-level price points to drive value, sounds like a good idea, very important. Can you just talk about how you are thinking about the range of outcomes for units versus AUR that could support the negative two to flat comp for the year?
Jill Timm: Sure. So I think from a comp perspective, Michael mentioned it well. We anchored the low end on our current performance. If you look at fall, we exited the year down two. The flat shows that we are going to have progressive improvement throughout the year. So, really, by starting at the low singles that I guided for Q1, you would actually say your exit rate has to get positive to exit at a flat. So we do know we have to make some changes. Obviously, we had some missteps with fall seasonal. We made those corrections with spring. It started out great. It is a small portion of the business right now, so I think caution. I do not want to become overly optimistic. That is, you know, as you know, not my nature, but we feel good with that business. We feel good with our year-round business, which has actually continued to perform well even through the fourth quarter. So I think we are cautiously optimistic there, but there are a lot of macro headwinds. And we know our consumer is low- to middle-income. They are under a lot of pressure. Obviously, a lot of things happening today that are taking their discretionary income. So we also want to be mindful of the environment that we are operating in. We are kind of balancing that as we enter into this year. We also know a lot of these investments into depth are going to happen as the year progresses. We mentioned footwear. We know we have some new innovation, but we do not expect that till the back half of the year. So there are things that are happening, but it does take some time to make those moves. So we wanted to make sure we gave ourselves that room within the guide to be able to make those changes. And as we continue to show progressive improvements throughout the year, that will show that these efforts are working. But I think, as Michael mentioned in his prepared remarks, it is not going to be a straight line. I mean, there are going to be some ups and downs, and it is not just within these four walls that we get to control what is happening. We do have to be mindful of the external environment, which brings us to why the coupon and the opening price point is so important. We know that our customer, particularly the low- to middle-income customer, is going to over-penetrate in these value brands, so we need to bring that to them. We have seen—you know, gosh, I think if I look back for the last 20 quarters, Michael—we typically have seen a pretty flat average transaction value. Our issue continues to be traffic. So whether we are bringing in higher price point or lower price point, they will fill that basket. Our average transaction value typically has stayed relatively flattish. It really comes down to driving traffic, which you have heard a lot more about marketing in this call because we know we need to continue to drive that traffic both in stores and digitally. We have done an incredible job digitally. Our traffic was very solid in the fourth quarter. We need to continue to do that to the stores. And I think the investments we are making in that experience, like Michael outlined, is a way for us to bring in some more traffic as well as just a better flow of goods. We transitioned in January, which is probably the first time we have done that in a long time—bringing in newness, having those transitional goods. It gives that customer a better reason to shop. And just on that inventory management, it affords us more currency of inventory and pulling goods faster, which we also think could be a driver of trips. So I feel well positioned as we enter the year. But I would say that I am also just cautious, being mindful of the macro environment that we are operating in.
Michael Binetti: Okay. Thanks a lot for all the help, Jill.
Jill Timm: Great. Thanks, Michael. And we are out of time for questions. This will conclude today’s conference call. Thank you for your participation. You may now disconnect.