Kohl's (KSS)

Department store chain Kohl’s (NYSE:KSS) announced better-than-expected revenue in Q2 CY2025, but sales fell by 5% year on year to $3.55 billion. Its non-GAAP profit of $0.56 per share was 88.6% above analysts’ consensus estimates.

Company Overview

Founded as a corner grocery store in Milwaukee, Wisconsin, Kohl’s (NYSE:KSS) is a department store chain that sells clothing, cosmetics, electronics, and home goods.

Department stores emerged in the 19th century to provide customers with a wide variety of merchandise under one roof, offering a convenient and luxurious shopping experience. They played an important role in the history of American retail and urbanization, and prior to department stores, retailers tended to sell narrow specialty and niche items. But what was once new is now old, and department stores are somewhat considered a relic of the past. They are being attacked from multiple angles–stagnant foot traffic at malls where they’ve served as anchors; more nimble off-price and fast-fashion retailers; and e-commerce-first competitors not burdened by large physical footprints.

Department or general merchandise retail competitors include Macy’s (NYSE:M), Nordstrom (NYSE:JWN), and Dillard’s (NYSE:DDS).

A company’s long-term sales performance can indicate its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years.

With $15.89 billion in revenue over the past 12 months, Kohl's is one of the larger companies in the consumer retail industry and benefits from a well-known brand that influences purchasing decisions. However, its scale is a double-edged sword because there is only so much real estate to build new stores, placing a ceiling on its growth. For Kohl's to boost its sales, it likely needs to adjust its prices or lean into foreign markets.

As you can see below, Kohl's struggled to generate demand over the last six years (we compare to 2019 to normalize for COVID-19 impacts). Its sales dropped by 3.7% annually as it didn’t open many new stores and observed lower sales at existing, established locations.

This quarter, Kohl’s revenue fell by 5% year on year to $3.55 billion but beat Wall Street’s estimates by 1.4%.

Looking ahead, sell-side analysts expect revenue to decline by 4.2% over the next 12 months, similar to its six-year rate. This projection is underwhelming and indicates its newer products will not catalyze better top-line performance yet.

Number of Stores

A retailer’s store count influences how much it can sell and how quickly revenue can grow.

Over the last two years, Kohl's has kept its store count flat while other consumer retail businesses have opted for growth.

When a retailer keeps its store footprint steady, it usually means demand is stable and it’s focusing on operational efficiency to increase profitability.

Note that Kohl's reports its store count intermittently, so some data points are missing in the chart below.

Same-Store Sales

A company's store base only paints one part of the picture. When demand is high, it makes sense to open more. But when demand is low, it’s prudent to close some locations and use the money in other ways. Same-store sales gives us insight into this topic because it measures organic growth for a retailer's e-commerce platform and brick-and-mortar shops that have existed for at least a year.

Kohl’s demand has been shrinking over the last two years as its same-store sales have averaged 5.4% annual declines. This performance isn’t ideal, and we’d be concerned if Kohl's starts opening new stores to artificially boost revenue growth.

In the latest quarter, Kohl’s same-store sales fell by 4.2% year on year. This decrease represents a further deceleration from its historical levels. We hope the business can get back on track.

Kohl's has good unit economics for a retailer, giving it the opportunity to invest in areas such as marketing and talent to stay competitive. As you can see below, it averaged an impressive 40.3% gross margin over the last two years. Said differently, Kohl's paid its suppliers $59.72 for every $100 in revenue.

In Q2, Kohl's produced a 43.3% gross profit margin, in line with the same quarter last year and exceeding analysts’ estimates by 8.4%. On a wider time horizon, the company’s full-year margin has remained steady over the past four quarters, suggesting it strives to keep prices low for customers and has stable input costs (such as labor and freight expenses to transport goods).

Kohl’s operating margin might fluctuated slightly over the last 12 months but has remained more or less the same, averaging 3.7% over the last two years. This profitability was lousy for a consumer retail business and caused by its suboptimal cost structure.

Analyzing the trend in its profitability, Kohl’s operating margin might fluctuated slightly but has generally stayed the same over the last year, meaning it will take a fundamental shift in the business model to change.

This quarter, Kohl's generated an operating margin profit margin of 7.9%, up 3.4 percentage points year on year. The increase was encouraging, and because its operating margin rose more than its gross margin, we can infer it was more efficient with expenses such as marketing, and administrative overhead.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Sadly for Kohl's, its EPS declined by 17.6% annually over the last six years, more than its revenue. This tells us the company struggled because its fixed cost base made it difficult to adjust to shrinking demand.

In Q2, Kohl's reported adjusted EPS of $0.56, down from $0.59 in the same quarter last year. Despite falling year on year, this print easily cleared analysts’ estimates. Over the next 12 months, Wall Street expects Kohl’s full-year EPS of $1.58 to shrink by 83.2%.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

Kohl's has shown impressive cash profitability, driven by its attractive business model that gives it the option to reinvest or return capital to investors. The company’s free cash flow margin averaged 3.6% over the last two years, better than the broader consumer retail sector. The divergence from its underwhelming operating margin stems from the add-back of non-cash charges like depreciation and stock-based compensation. GAAP operating profit expenses these line items, but free cash flow does not.

Taking a step back, we can see that Kohl’s margin dropped by 1.1 percentage points over the last year. This decrease warrants extra caution because Kohl's failed to grow its same-store sales. Its cash profitability could decay further if it tries to reignite growth by opening new stores.

Kohl’s free cash flow clocked in at $508 million in Q2, equivalent to a 14.3% margin. This result was good as its margin was 10.5 percentage points higher than in the same quarter last year, but we wouldn’t read too much into the short term because investment needs can be seasonal, causing temporary swings. Long-term trends trump fluctuations.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Kohl's historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 12.2%, somewhat low compared to the best consumer retail companies that consistently pump out 25%+.

Kohl's reported $174 million of cash and $6.86 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $1.36 billion of EBITDA over the last 12 months, we view Kohl’s 4.9× net-debt-to-EBITDA ratio as safe. We also see its $148 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

It was good to see Kohl's beat analysts’ EPS expectations this quarter. We were also excited its gross margin outperformed Wall Street’s estimates by a wide margin. Zooming out, we think this quarter featured some important positives. The stock traded up 18.8% to $15.49 immediately after reporting.

Updated: November 14, 2025 at 9:49 PM EST

Before deciding whether to buy Kohl's or pass, we urge investors to consider business quality, valuation, and the latest quarterly results.

Kohl's doesn’t pass our quality test. For starters, its revenue has declined over the last six years, and analysts don’t see anything changing over the next 12 months. And while its gross margins indicate a healthy starting point for the overall profitability of the business, the downside is its projected EPS for the next year is lacking. On top of that, its shrinking same-store sales tell us it will need to change its strategy to succeed.

Kohl’s P/E ratio based on the next 12 months is 31.9x. At this valuation, there’s a lot of good news priced in - you can find more timely opportunities elsewhere.

Wall Street analysts have a consensus one-year price target of $15.61 on the company (compared to the current share price of $16.80), implying they don’t see much short-term potential in Kohl's.