KOHLS Corp (KSS)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

For purposes of the following discussion, unless noted, all references to "the quarter” and “the first quarter” are for the three fiscal months (13 weeks) ended May 2, 2026 or May 3, 2025.

This Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as "believes," "anticipates," "plans," "may," "intends," "will," "should," "expects," and similar expressions are intended to identify forward-looking statements. Forward-looking statements include certain statements under Management's Discussion and Analysis and may include comments about our future sales or financial performance and our plans, performance and other objectives, expectations or intentions, such as statements regarding our liquidity, debt service requirements, planned capital expenditures, future store initiatives, adequacy of capital resources and reserves, and the impact of macroeconomic events, including inflation, consumer behavior, and changes in global trade policies, such as tariffs, and our response to such events. Forward-looking statements are based on management’s then-current views and assumptions and, as a result, are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected. Any such forward-looking statements are qualified by the important risk factors, described in Part I Item 1A of our 2025 Form 10-K and in Part II Item 1A of this Form 10-Q, or disclosed from time to time in our filings with the SEC, that could cause actual results to differ materially from those predicted by the forward-looking statements. Forward-looking statements relate to the date initially made, and we undertake no obligation to update them. Certain amounts set forth below may not foot or crossfoot due to rounding.

Executive Summary

Kohl's is a leading omnichannel retailer operating 1,151 stores and a website (www.Kohls.com) as of May 2, 2026. Our Kohl's stores and website sell moderately-priced proprietary and national brand apparel, footwear, accessories, beauty, and home products. Our Kohl's stores generally carry a consistent merchandise assortment with some differences attributable to local preferences and store size. Our website includes merchandise which is available in our stores, as well as merchandise that is available only online.

Key financial results for the first quarter include:

•
Net sales decreased 1.7%, to $3.0 billion, with comparable sales down 1.1%.

•
Gross margin as a percentage of net sales was 39.9%, an increase of 4 basis points year-over-year.

•
Selling, general, and administrative ("SG&A") expenses decreased 1.6%, to $1.1 billion. As a percentage of total revenue, SG&A expenses were 36.2%, an increase of 15 basis points year-over-year.

•
Operating income was $46 million compared to $60 million in the prior year. As a percentage of total revenue, operating income was 1.4%, a decrease of 41 basis points year-over-year.

•
Net loss was $14 million, or ($0.13) per diluted share. This compares to net loss of $15 million, or ($0.13) per diluted share in the prior year.

•
Inventory was $2.9 billion, a decrease of 8% year-over-year.

•
Operating cash flow was a use of $74 million.

•
Borrowings under revolving credit facility were $0, a decrease of $545 million year-over-year.

Our Strategy

Kohl's remains committed to driving long-term shareholder value by providing our customers with great product, great value, and a great experience. We have three key initiatives to achieve this: we offer a curated, balanced assortment that fulfills needs across all customers, we are reestablishing Kohl’s as a leader in value and quality, and we are delivering a frictionless experience to customers across our omnichannel platforms.

14

Table of Contents

Results of Operations

Total Revenue

Net sales includes revenue from the sale of merchandise, net of expected returns and deferrals due to future performance obligations, and shipping revenue.

Net sales decreased 1.7% in the first quarter of 2026 compared to the first quarter of 2025.

•
The decrease in the first quarter was driven by a decrease in transaction volume of approximately 4%, offset by an increase in average transaction value of approximately 2%.

•
In the first quarter, Women's, Home, Accessories, and Children's net sales performed better than the total company average.

Comparable sales decreased 1.1%. Comparable sales is a measure that highlights the performance of our stores and digital channel by measuring the change in sales for a period over the comparable, prior-year period of equivalent length. Comparable sales includes all store and digital sales, except sales from stores open less than twelve months, stores that have been closed, and stores that have been relocated where square footage has changed by more than 10%.

Digital sales increased 4.0% and digital penetration represented 26% of net sales compared to 24% in the first quarter of 2025. We measure the change in digital sales by including all sales initiated online or through mobile applications, including omnichannel transactions which are fulfilled through our stores. We measure digital penetration as digital sales over net sales. These amounts do not take into consideration fulfillment node, digital returns processed in stores, and coupon behaviors.

Comparable sales and digital penetration measures vary across the retail industry. As a result, our comparable sales calculation and digital penetration may not be consistent with the similarly titled measures reported by other companies.

Other revenue includes revenue from credit card operations, third-party advertising on our website, unused gift cards and merchandise return cards (breakage), and other non-merchandise revenue.

Other revenue decreased $15 million due to lower revenue from our credit card operations. This was driven by lower late fees and finance charges partially offset by lower write-off activity.

15

Table of Contents

Cost of Merchandise Sold and Gross Margin

Cost of merchandise sold includes the total cost of products sold, including product development costs, net of vendor payments other than reimbursement of specific, incremental, and identifiable costs; inventory shrink; markdowns; freight expenses associated with moving merchandise from our vendors to our distribution centers; shipping expenses for digital sales; terms cash discount; and amounts due to Sephora for their share of operating profits under the Sephora arrangement. Our cost of merchandise sold may not be comparable with that of other retailers because we include distribution center and buying costs in selling, general, and administrative expenses while other retailers may include these expenses in cost of merchandise sold.

Gross margin is calculated as net sales less cost of merchandise sold. For the first quarter of 2026, gross margin was 39.9% of net sales, an increase of 4 basis points to last year. The increase was caused by merchandise mix with increased proprietary brand penetration, partially offset by elevated shipping costs driven by our digital sales increase of 4% year over year.

Selling, General, and Administrative Expense

SG&A includes compensation and benefit costs (including stores, corporate, buying, and distribution centers); occupancy and operating costs of our retail, distribution, and corporate facilities; freight expenses associated with moving merchandise from our distribution centers to our retail stores and among distribution and retail facilities other than expenses to fulfill digital sales; marketing expenses, offset by vendor payments for reimbursement of specific, incremental, and identifiable costs; expenses related to our credit card operations; and other administrative revenues and expenses. We do not include depreciation and amortization in SG&A. The classification of these expenses varies across the retail industry.

Many of our expenses, including store payroll and distribution costs, are variable in nature. These costs generally increase as sales increase and decrease as sales decrease. We measure our expenses as a percentage of revenue and changes in this percentage compared to the prior year. If the expense as a percent of revenue decreased from the prior year, the expense "leveraged." If the expense as a percent of revenue increased over the prior year, the expense "deleveraged."

The following table summarizes the changes in SG&A by expense type:

16

Table of Contents

SG&A expenses decreased $19 million, or 1.6%, to $1.1 billion. As a percentage of revenue, SG&A deleveraged by 15 basis points. The decrease in SG&A expenses was driven by lower corporate and other costs, primarily from reduced credit expenses.

Other Expenses

Depreciation and amortization was $174 million, relatively flat to the first quarter of 2025.

Net interest expense decreased due to a gain on extinguishment of debt related to the open market repurchases of long term debt completed in the first quarter of 2026 and no outstanding balance on the revolving credit facility. The reductions were partially offset by interest on our 2030 notes, issued in the second quarter of 2025.

Income Taxes

In both periods, the effective tax rate results in a net benefit for income taxes on a pre-tax loss. The impact of the 2026 and 2025 net unfavorable tax items, when compared to a pre-tax loss, results in decreasing the tax rate from the statutory rate.

Inflation, Global Economic Conditions, and Trade Policies

We expect that our operations will continue to be influenced by general economic conditions, including food, fuel and energy prices, higher unemployment, wage inflation, and costs to source our merchandise, including tariffs. During 2025, the U.S. government utilized the IEEPA to impose additional tariffs on a broad range of imports, including certain consumer goods. While these actions did not have a material impact on our 2025 and year-to-date 2026 results, the global trade environment remains flui

[Excerpt truncated for page length; source filing is linked above.]

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Executive Summary

Kohl's is a leading omnichannel retailer operating 1,153 stores and a website (www.Kohls.com) as of January 31, 2026. Our Kohl's stores and website sell moderately-priced proprietary and national brand apparel, footwear, accessories, beauty, and home products. Our Kohl's stores generally carry a consistent merchandise assortment with some differences attributable to local preferences and store size. Our website includes merchandise which is available in our stores, as well as merchandise that is available only online.

Key financial results for 2025 as compared to 2024 include:

•
Net sales decreased 4.0%, to $14.8 billion, with comparable sales down 3.1%.

•
Gross margin as a percent of net sales was 37.5%, an increase of 34 basis points.

•
Selling, general & administration ("SG&A") expenses decreased 4.1% year-over-year, to $5.1 billion. As a percentage of total revenue, SG&A expenses were 32.8%, an increase of 5 basis points year-over-year.

•
Gain on legal settlement was $129 million from a credit card interchange fee lawsuit settlement.

•
Operating income was $624 million compared to $433 million in the prior year. As a percentage of total revenue, operating income was 4.0%, an increase of 135 basis points year-over-year.

•
On an adjusted non-GAAP basis, our adjusted operating income was $510 million compared to $509 million in the prior year.(a) As a percentage of total revenue, adjusted operating income was 3.3% compared to 3.1% in the prior year.(a)

•
Net income was $272 million, or $2.38 per diluted share. This compares to net income of $109 million, or $0.98 per diluted share in the prior year.

•
On an adjusted non-GAAP basis, our adjusted net income was $186 million, or $1.62 per adjusted diluted share.(a) This compares to adjusted non-GAAP net income of $167 million, or $1.50 per adjusted diluted share in the prior year.(a)

•
Cash flow provided by operating activities was $1.4 billion compared to $648 million in the prior year.

•
Current portion of long-term debt was reduced by $353 million through repayment of the 4.25% notes due July 2025 at maturity.

•
There were no outstanding borrowings under the revolving credit facility compared to $290 million in the prior year.

•
Long term debt increased $262 million through issuance of $360 million of 10.000% senior secured notes due 2030, partially offset by open market repurchases of $87 million of our outstanding long term debt.

(a)
Non-GAAP financial measures. Please see the “GAAP to Non-GAAP Reconciliation” for a reconciliation of adjusted operating income to operating income, adjusted net income to net income, and adjusted diluted earnings per share to diluted earnings per share.

Our Strategy

Kohl's remains committed to driving long-term shareholder value by providing our customers with great product, great value, and a great experience. To achieve this, we will offer a curated, more balanced assortment that fulfills needs across all customers, reestablish Kohl’s as a leader in value and quality, and deliver a frictionless experience to customers across our omnichannel platforms.

25

Table of Contents

Financial and Capital Outlook

For fiscal year 2026, the Company currently expects the following:

•
Net sales and Comparable sales: A decrease of (2%) to flat

•
Adjusted operating margin: In the range of 2.8% to 3.4% (b)

•
Adjusted diluted EPS: In the range of $1.00 to $1.60 (b)

•
Capital Expenditures: Approximately $350 million to $400 million

•
Dividend: On February 25, 2026, Kohl’s Board of Directors declared a quarterly cash dividend on the Company’s common stock of $0.125 per share. The dividend is payable April 1, 2026 to shareholders of record at the close of business on March 18, 2026.

(b)
Non-GAAP financial measures. The Company provides adjusted operating margin and adjusted diluted earnings per share on a non-GAAP basis and does not provide a reconciliation of the Company’s forward looking guidance to the most directly comparable GAAP financial measures because of the inherent difficulty in forecasting and quantifying certain amounts that are necessary for such reconciliations.

Results of Operations

For our comparison and discussion of 2024 and 2023, see Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations in Part II of our 2024 Form 10-K.

Net Sales

Net sales includes revenue from the sale of merchandise, net of expected returns and deferrals due to future performance obligations, and shipping revenue.

Comparable sales is a measure that highlights the performance of our stores and digital channel by measuring the change in sales for a period over the comparable, prior-year period of equivalent length. Comparable sales includes all store and digital sales, except sales from stores open less than 12 months, stores that have been closed, and stores that have been relocated where square footage has changed by more than 10%.

The following graph summarizes net sales dollars and the change in comparable sales over the prior year.

Digital sales were approximately flat in 2025 year-over-year. Digital penetration represented 29% of net sales in 2025 and 28% of net sales in 2024. We measure the change in digital sales by including all sales initiated online or through mobile applications, including omnichannel transactions which are fulfilled through our stores. We measure digital penetration as digital sales over net sales. These amounts do not take into consideration fulfillment node, digital returns processed in stores, and coupon behaviors.

Comparable sales and digital penetration measures vary across the retail industry. As a result, our comparable sales calculation and digital penetration may not be consistent with the similarly titled measures reported by other companies.

26

Table of Contents

2025 compared to 2024

Net sales decreased $610 million, or (4.0%), to $14.8 billion for 2025.

•
The decrease was driven by an approximately 4% decrease in transaction volume.

•
Sales decreased across all lines of business, except for Accessories, which increased approximately 2% during 2025.

Other Revenue

Other revenue includes revenue from credit card operations, third-party advertising on our website, unused gift cards and merchandise return cards (breakage), and other non-merchandise revenue.

The following graph summarizes other revenue:

Other revenue decreased $84 million in 2025 due to lower credit revenue, which was driven by certain credit card expenses shifting against other revenue from SG&A as we moved part of our account servicing to the third party that owns the accounts and lower sales to our Kohl's credit card customer.

Cost of Merchandise Sold and Gross Margin

Cost of merchandise sold includes the total cost of products sold, including product development costs, net of vendor payments other than reimbursement of specific, incremental, and identifiable costs; inventory shrink; markdowns; freight expenses associated with moving merchandise from our vendors to our distribution centers; shipping expenses for digital sales; and terms cash discount. Our cost of merchandise sold may not be comparable with that of other retailers because we include distribution center and buying costs in selling, general, and administrative expenses while other retailers may include these expenses in cost of merchandise sold.

27

Table of Contents

The following graph summarizes cost of merchandise sold and gross margin as a percent of net sales:

Gross margin is calculated as net sales less cost of merchandise sold. Gross margin in 2025 was 37.5% of net sales, an increase of 34 basis points to last year. The increase was driven by strong inventory management, merchandise mix, and moderating shrink levels. Strong inventory management was driven by fewer clearance markdowns, as our inventory decreased 7% to last year, and receipts for the year were down 8%.

Selling, General, and Administrative Expenses

SG&A includes compensation and benefit costs (including stores, corporate, buying, and distribution centers); occupancy and operating costs of our retail, distribution, and corporate facilities; freight expenses associated with moving merchandise from our distribution centers to our retail stores and among distribution and retail facilities other than expenses to fulfill digital sales; marketing expenses, offset by vendor payments for reimbursement of specific, incremental, and identifiable costs; expenses related to our credit card operations; and other administrative revenues and expenses. We do not include depreciation and amortization in SG&A. The classification of these expenses varies across the retail industry.

Many of our expenses, including store payroll and distribution costs, are variable in nature. These costs generally increase as sales increase, and decrease as sales decrease. We measure our expenses as a percentage of revenue and changes in this percentage compared to the prior year. If the expense as a percent of revenue decreased from the prior year, the expense "leveraged". If the expense as a percent of revenue increased over the prior year, the expense "deleveraged".

The following graph summarizes the changes in SG&A by expense type between 2024 and 2025:

28

Table of Contents

SG&A decreased $219 million, or 4.1%, to $5.1 billion in 2025. As a percentage of revenue, SG&A deleveraged by 5 basis points.

The decrease in SG&A expenses was driven by lower store payroll, marketing, and distribution costs, as well as a shift of certain corporate credit card expenses to other revenue due to moving part of our account servicing to the third party that owns the accounts, partially offset by an increase in other corporate expenses. Without the shift of certain corporate credit expenses, SG&A expenses would have decreased 2.8% to last year in 2025.

Other Expenses

The decrease in depreciation and amortization in 2025 was primarily driven by lower capital spend and closed locations.

In 2025, we recognized $15 million in Impairments, store closing, and other costs. Included in this amount was $11 million of non-cash charges related to asset impairments, $10 million of severance, and $6 million of other costs primarily related to the closure of our Monroe, Ohio E-commerce Fulfillment Center. We also reversed $12 million of other exit costs initially recognized in the fourth quarter of 2024, related to the closure of our San Bernardino, California E-commerce Fulfillment Center and 27 underperforming stores due to favorable landlord negotiations.

In 2024, we recognized $76 million in Impairments, store closing, and other costs related to the closure of our San Bernardino E-commerce Fulfillment Center and 27 underperforming stores. Included in this amount was $43 million of fixed asset impairments, $11 million of lease Right of Use (“ROU”) asset impairments, $14 million of severance, and $26 million in other costs relating to the closure of these locations. The $26 million in other costs includes $32 million of costs offset by $6 million in cash proceeds related to lease termination agreements. Offsetting these costs were $18 million in non-cash le

[Excerpt truncated for page length; the complete text is on the linked full-MD&A page.]