KSS 10-K & 10-Q changes, risk factors and insider trading

This Form 10-K contains “forward-looking statements” made 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 thecertain statements under management'sManagement's discussionDiscussion and analysis, financialAnalysis and capitalFinancial outlookand Capital Allocation Outlook 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, and adequacy of capital resources and reserves.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. As such, forward-looking statements are qualified by those risk factors described below. Forward-looking statements relate to the date made, and we undertake no obligation to update them. References to past events are provided by way of example only and are not intended to be a complete listing or a representation as to whether or not such factors have occurred in the past or their likelihood of occurring in the future.

Our sales, revenues, gross margin, expenses, and operating results could be negatively impacted by a number of factors including, but not limited toto, those described below. Many of these risk factors are outside of our control. If we are not successful in managing these risks, they could have a negative impact on our sales, revenues, gross margin, expenses, and/or operating results.

GeneralOur business is highly sensitive to general economic conditions, consumer spending levels, and/or other conditionsexternal conditions, which could decline.

Our business is sensitive to the growth of the U.S. economy and the strength of the U.S. consumer. Consumer spending habits, including spendingdemand for the merchandise that we sell, are affected by manyvarious factors beyond our control, including prevailing economic conditions, inflation and measures taken to control inflation,it, consumer responses to recessionary concerns, levels of employment, salaries and wage rates, prevailing interest rates, housing costs, energy and fuel costs, income tax rates and policies, consumer confidence, consumer perception of economic conditions, and the consumer’s disposable income, credit availability, and debt levels. TheOur core moderate-income consumer, which is our core customer,customer is especially sensitive to these factors. When the cost of basic necessities, such as food, fuel, and healthcare, increases, these customers often reduce their discretionary spending, which may negatively impact our results of operations. A slowdown in the U.S. economy oreconomy, an uncertain economic outlookoutlook, or a decline in consumer confidence could adversely affect consumer spending habits.habits Asand result in lower traffic to our physical stores and digital platforms, increased markdowns, reduced sale conversion rates, and an adverse effect on our results of operations. Because all of our physical stores are located in the United States, we are especially susceptible to deteriorations in the U.S. economy.economy compared to more geographically diversified competitors.

Weather conditionsconditions, natural disasters, and naturalthe disasterspotential impacts of climate change could adversely affect consumer shopping patterns and disrupt our operations.

Further,Furthermore, unseasonable weather conditions, including unusually warm weather in the fall or winter months or abnormally wet or cold weather in the spring or summer months, whether due to climate change or otherwise, could have a material adverse effect on our business, financial condition, and operating results, as such conditions may reduce demand for seasonal merchandise and create inventory imbalances. This inconsistency between consumer spending may be inconsistent withand our typical inventory purchasing cycle.cycle may necessitate higher markdowns to clear seasonal products, which adversely affects our gross margins and profitability.

We may be unable to successfully execute anour omnichannel strategy.

Customer expectations regarding how they purchase and receive products are continuously evolving, with increasing use of technology and mobile devices to rapidly compare products, check prices, make purchases, and seek alternate delivery options. To stay competitive, we must continually anticipate and adapt to these changes in consumer behavior. The success of our omnichannel strategy depends on deliveringthe seamless integration of our physical and digital channels to deliver a seamlessfrictionless shopping experience -experience, both in-store and online. This requires maintaining uninterrupted availability of our website and supporting applications, adequate and accurate inventory levels,levels across our stores and digital platforms, timely fulfillment of customer orders, and accurate shipping of undamaged products, and integrating these efforts across our physical locations.products. Our physical stores play a crucial role in attracting customers, driving traffic to digital channels, and supporting fulfillment, returns, and other omnichannel functions. Any inability to maintain or increase store traffic or to improve sales conversion rates across both physical and digital channels could adversely affect our results of operations.

Our ability to compete with other retailers and to meet our customers' expectations may suffer if we are unable to provide relevant customer-facing technology,technology and a compelling in-storeomnichannel experience,value proposition. As consumer behavior shifts toward a value-seeking mindset, our ability to differentiate our value proposition through personalization and positiveloyalty omnichannelremains experiences.critical. AsOur we continueefforts to refine our omnichannel value strategy, our effortsstrategy may negatively impact the loyalty of certain customers and our efforts to mitigate this impact may not be successful. Additionally, declining store traffic or shifting sales from physical stores to digital platforms could lead to store closures, restructuring and other costs, and adverse effects on our financial performance.

We may be unable to offer merchandise that resonates with existing customers and attracts new customers as well aswhile successfully managemanaging our inventory levels.

We believe that differentiating Kohl's in the marketplace is critical to our success. We design our marketing and loyalty programs to increase awarenessbrand of our brands and toawareness, build personalized connections with new and existing customers.customers, and drive traffic and conversion. We believe these programs will strengthen customer loyalty, increase the number and frequency of customers that shop our stores and website, and increase our sales. If our marketing and loyalty programs are not successful or efficient, we may fail to strengthen customer loyalty or increase shopping frequency, which could adversely affect our sales and operating results could be adversely affected.results.

We believe the Kohl's brand name and many of our private brand names are powerful sales and marketing tools. We devote significant resources to develop, promote, and protect private brands that generate national recognition. In some cases, the private brands or the marketing of such brands are tied to or affiliated with well-known individuals. We also associate the Kohl’s brand with third-party national brands that we sell in our store and through our partnerships with companies in pursuit of strategic initiatives. Further, we focus onOur ESG asprofile is a component of our strategy, and we have and may at times continue to engage in voluntary initiatives (such as voluntary disclosures, certifications, or goals, among others) to improve the ESG profile of our company and/or products. ForHowever, example, we publish an annual report to share information with our stakeholders, including partners, shareholders, customers, and associates, regarding our ESG progress. Thesethese disclosures reflect our goals and otherassumptions expectations and assumptions, whichthat are necessarilyinherently uncertain and which may not be realized. SuchThese initiatives may be costly, evenfail ifto realized,achieve mayintended not have the desired effect, and actionsresults, or lead to litigation or regulatory or stakeholder scrutiny. Furthermore, statements that we may take based on expectations,current assumptions,assumptions or third-party informationdata thatmay wesubsequently currently believeprove to be reasonable may subsequently be determined to be erroneousinaccurate or be subject to misinterpretation. AtStakeholder the same time, investor and other stakeholder expectations, and voluntaryexpectations and regulatory ESG disclosure standards andon policies,ESG continue to evolve and are not uniform. We may be subject to investor or regulator engagementuniform, and/or litigation on our ESG initiatives and disclosures, even if such initiatives are currently voluntary. We also note that there are divergent views regarding ESG principles in the U.S., and in particular, in U.S. state-level regulation and enforcement efforts andparticularly among certain activist stakeholders.stakeholders and state-level regulators. To the extent ESG matters negatively impact our brand and reputation, they may also impede our ability to compete as effectively to attract and retain employeesassociates or customers, which may adversely impact our operations, business, financial condition, results of operations, cash flow and prospects.

Our credit card operations facilitate merchandise sales and generate additional revenue from fees related to extending credit. The profitability of our credit card program is sensitive to the economic health of our core moderate-income customer. The private label and co-branded Kohl's credit card accounts are owned by an unrelated third-party, but we share in the net risk-adjusted revenue of the portfolio, which is defined as the sum of finance charges, late fees, and other revenue less write-offs of uncollectible accounts. Changes in funding costs related to interest rate fluctuations are shared similar to the revenue when interest rates exceed defined amounts. ThoughAlthough management currently believes that increases in funding costs will be largely offset by increases in finance charge revenue, increases in funding costscosts, including significant or rapid interest rate fluctuations, could adversely impact the profitability of our credit card operations. Additionally,Further ondeterioration Marchin 5,macroeconomic 2024,conditions, theincluding Consumerpersistent Financialinflation Protectionor Bureaurising ("CFPB")unemployment, releasedcould aincrease finalcredit rulelosses and write-offs, reducing the safenet harborrevenue dollarwe amountreceive forfrom our credit card lateprogram. feesAdditionally, consumer preference is shifting toward alternative payment methods, including “buy now, pay later” and eliminatingother thedigital automaticpayment annualmethods. inflationA adjustmentshift toaway suchfrom safeour harborbranded dollarcredit amount.products Thecould rulereduce iscustomer subject to legal challenge,loyalty and the Unitedhigher-margin Statestransactions Districtoften Courtassociated forwith the Northern Districtuse of Texas granted a preliminary injunction, staying implementation of the rule, on May 10, 2024. As of February 1, 2025, this injunction remains in effect. The ultimate outcome of this legal challenge, along with the rule’s effectiveness and implementation under the new presidential administration, remains uncertain. If implemented, this rule could adversely impact Kohl’sour credit card revenues, particularly if Kohl's steps to mitigate the impact of such rule are not successful.card.

Our performance is dependent on attracting and retaining a large number of quality associates, including our senior management team and other key associates, and successfully executing organizational changes, such as leadership transitions. Leadership transitions can be disruptive and may result in the loss of key personnel, changes in business direction, or difficulties in maintaining operational focus and consistency. While we have succession plans for our senior management team, they may not be adequate to replace members of our senior management, including our Chief Executive Officer, or may not be successfully executed.

The efficient operation of our business is dependent on our information systems. In particular, we rely on our information systems to effectively manage sales, distribution, and merchandise planning and allocation functions. We also generate sales through the operations of our Kohls.com website.website and the Kohl’s app. We frequently make investments that will help maintain and update our existing information systems. We also depend on third parties as it relates to our information systems. Although we and our third-party vendors seek to maintain our respective systems and address the risk of compromise of integrity, security, and consistent operation of these systems, such efforts are not always successful, and we or our third-party vendors could experience interruptions, delays, or cessation of service. The potential problems and interruptions associated with implementing technology initiatives, the failure of our information systems to perform as designed, or the failure to successfully partner with our third-party service providers, such as our cloud platform providers, could disrupt our operations, harm our sales and profitability, impair data security, and be time-consuming, costly and/or resource intensive to remedy. Additionally, certain of our business operations rely on proprietary legacy platforms that may be difficult to support, modernize, or rebuild if catastrophic issues occur. Dependence on such systems could lead to prolonged business disruptions or security vulnerabilities, which could adversely affect our results of operations and increase costs.

As part of our normal course of business, we collect, retain, process, and transmit sensitive and confidential customer, associate, and company information. We also engage third-party vendors that provide technology, systems, and services to facilitate our collection, retention, processing, and transmission of this information. We face risk that our facilities and systems and those of our third-party vendors are vulnerable to cybersecurity threats, security breaches, system failures, acts of vandalism, fraud, misappropriation, malware, ransomware, and other malicious or harmful code, misplaced or lost data, programming and/or human errors, insider threats, or other similar events. The ever-evolving and increasingly sophisticated methods of cyber-attack may be difficult or impossible to anticipate and/or detect. Our ability to monitor our vendors and service providers’ data security is limited, and, in any event, third parties may be able to circumvent those security measures, resulting in the unauthorized access to, misuse, acquisition, disclosure, loss, alteration, or destruction of our and our customers’ and associates’ data, including confidential, sensitive, and other information about individuals. Any data security incident involving the breach, misappropriation, loss, or other unauthorized disclosure of sensitive and/or confidential information, whether by us or our vendors, the failure or unavailability of technology systems, or ineffectiveness of business continuity or disaster recovery plans in the event of the foregoing events could disrupt our operations, damage our reputation and customers' willingness to shop in our stores or on our website,website or app, violate applicable laws, regulations, orders and agreements, and subject us to additional costs and liabilities which could be material. While we maintain insurance coverage designed to address certain aspects of cyber risks, such insurance coverage may be insufficient to cover all losses or all types of claims that may arise. In addition, the regulatory environment related to data privacy and cybersecurity is constantly changing, with new and increasingly demanding requirements applicable to our business. Maintaining our compliance with those requirements, including recently enacted statestate-specific consumer privacy laws, may increase our compliance costs, require changes to our business practices, limit our ability to use and collect data, impact our customers’ shopping experience, reduce our business efficiency, and subject us to additional regulatory scrutinyscrutiny, orfines, data breach litigation.litigation, or reputational damage.

Our information technology projects may not yield their intended results.results, and our use of artificial intelligence and machine learning technology presents evolving operational and legal risks.

We regularly have internal information technology projects in process. Although the technology is intended to increase productivity and operating efficiencies, these projects may not yield their intended results or may deliver an adverse user or customer experience. We may incur significant costs in connection with the implementation, ongoing use, or discontinuation of technology projects, or fail to successfully implement these technology initiatives, or achieve the anticipated efficiencies from such projects, any of which could adversely affect our operations, liquidity, and financial condition. In addition, we may not be able to adapt or adapt quickly enough to technological change, including that brought about by the use of artificial intelligence. If our competitors are more successful in adapting to such changes or otherwise incorporating such changes into their business or operations, this could have a material adverse impact on our business and results of operations.

A third-party purchasing agent sources approximately 10% of the merchandise we sell. The remaining merchandise is sourced from a wide variety of domestic and international vendors. Our ability to find qualified vendors and access to brands or products in a timely and efficient manner is a significant challenge,challenge. whichOur merchandise is typicallysourced evenfrom morea difficultwide forvariety of domestic and international vendors. Substantially all goods sourced outside the United States, substantially all of whichU.S. are shipped by ocean to ports in the United States.States, making us vulnerable to port strikes, port congestion and delays, transport capacity constraints, and rising freight costs. Political or financial instability, trade restrictions, tariffs, currency exchange rates, transport capacity and costs, pandemic outbreaks, military conflicts, work stoppages, port strikes, port congestion and delays, information technology challenges, and other factors relating to foreign trade are beyond our control and have impacted or could continue to adversely impact our performance and cause us to pay more to obtain inventory or result in having the wrong inventory at the wrong time. In addition, certain laws and regulations impose import restrictions for goods, which may induce greater supply chain compliance costs and may result in delays to us or adversely impact our inventory. Where we are the importer of record, we may be subject to additional regulatory and other requirements, resulting in additional costs to us.

We may be unable to raise additional capital or maintain bank credit on favorable terms, which could adversely affectconstrain our businessoperational flexibility and financialincrease condition.our cost of doing business.

We have historically relied on the public debt markets to raise capital to partially fund our operations and growth. We have also historically maintained lines of credit with financial institutions. In January 2023, we upsized and replaced our unsecured credit facility with a $1.5 billion senior secured, asset based revolving credit facility. Changes in the credit and capital markets, including market disruptions, limited liquidity, and interest rate fluctuations may increase the cost of financing or restrict our access to these potential sources of future liquidity. Our continued access to these liquidity sources on favorable terms depends on multiple factors, including our operating performance and debt ratings. During 2024, S&P downgraded our senior unsecured credit rating from BB to BB- and Moody's downgraded our rating from Ba3 to B1. These downgrades have caused our cost of borrowing to increase,increase. andDuring 2025, Moody's further downgraded our senior unsecured credit rating from B1 to B3; however, further downgrades by Moody's do not trigger incremental interest rate increases on our existing debt. Further downgrades by S&P would cause our cost of borrowing to further increase. Declines in our credit ratings may also adversely affect our ability to access the debt markets and the terms and our cost of funds for new debt issuances. In addition, multiple further downgrades in our corporate credit rating could trigger less favorable terms under certain commercial arrangements, which could negatively impact our profitability and increase our costs. If our credit ratings were to be further downgraded, or general market conditions were to ascribe higher risk to our credit rating levels, our industry, or our Company, our access to capital and the cost of debt financing may be negatively impacted. Additionally, if unfavorable capital market conditions exist if and when we were to seek additional financing, we may not be able to raise sufficient capital on favorable terms and on a timely basis (if at all). The terms of current and future debt agreements could restrict our business operations or cause future financing to be unavailable due to our covenant restrictions then in effect. Also, if we are unable to comply with the covenants under our revolving credit facility, the lenders under that agreement will have the right to terminate their commitments thereunder and declare the outstanding loans thereunder to be immediately due and payable. A default under our revolving credit facility could trigger a cross-default, acceleration, or other consequences under other indebtedness or financial instruments to which we are a party. If our access to capital were to become significantly constrained or our cost of capital were to increase significantly our financial condition, results of operations, and cash flows could be adversely affected.

Our capital allocation couldstrategy may be inefficientinefficient, may not yield the anticipated returns, or ineffective.may not effectively support our long-term growth.

Our goal is to invest capital toin maximizea ourmanner overallthat maximizes long-term returns.returns and shareholder value. This includes prioritizing spending on inventory, capital projects and expenses,expenses; managing debt levels,levels; and periodically returning value to our shareholders through dividends and, longer term, share repurchases. To a large degree, capital efficiency reflects how well we manage our other key risks. The actions taken to address other specific risks may affect how well we manage the more general risk of capital efficiency. If we do not properly allocate our capital to maximize returns, or if our investments do not deliver the expected returns within anticipated timeframes, we may fail to produce optimal financial results,results. andAdditionally, wea maymisallocation experienceof resources toward defensive measures could limit our ability to fund future growth-oriented projects, resulting in a reduction in our competitive position and shareholder value.

Kohl's is a leading omnichannel retailer operating 1,1751,153 stores and a website (www.Kohls.com) as of FebruaryJanuary 1,31, 2025.2026. Our Kohl's stores and website sell moderately-priced privateproprietary 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,preferences and store size, and Sephora shops.size. Our website includes merchandise which is available in our stores, as well as merchandise that is available only online.

Net sales decreased 7.2%,4.0%, to $15.4$14.8 billion.billion, 2023with netcomparable sales includeddown approximately $164 million from the 53rd week.3.1%.

Selling, general & administration ("SG&A") expenses decreased 3.7%,4.1% year-over-year, to $5.3$5.1 billion. As a percentage of total revenue, SG&A expenses were 32.7%,32.8%, an increase of 1185 basis points year-over-year.

Operating income was $433$624 million compared to $717$433 million in the prior year. As a percentage of total revenue, operating income was 2.7%,4.0%, aan decreaseincrease of 143135 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 $109$272 million, or $0.98$2.38 per diluted share. This compares to net income of $317$109 million, or $2.85$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.share in the prior year.(a) Operating cashCash flow provided by operating activities was $1.4 billion compared to $648 million.million in the prior year.

Long-termCurrent portion of long-term debt was reduced by $113$353 million through the voluntary redemptionrepayment of the remaining 9.50%4.25% notes due MayJuly 15,2025 2025.at maturity.

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

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 curatedcurated, more balanced assortment,assortment that fulfills needs across all customers, reestablish Kohl’s to beas a leader in value and quality, and enhance our omnichannel platform to deliver a frictionless experience to customers.customers across our omnichannel platforms.

Net sales and Comparable sales: A decrease of (4%2%) to a decrease of (6%)flat

OperatingAdjusted operating margin: In the range of 2.2%2.8% to 2.6%3.4% (b)

DilutedAdjusted diluted EPS: In the range of $0.10$1.00 to $0.60$1.60 (b)

Capital Expenditures: Approximately $350 million to $400 million Dividend: On MarchFebruary 11,25, 2025,2026, 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 2,1, 20252026 to shareholders of record at the close of business on March 21,18, 2025.2026.

Digital sales decreasedwere 9%approximately flat in 2024.2025 year-over-year. Digital penetration represented 29% of net sales in 2025 and 28% of net sales in 2024 and 29% of net sales in 2023.2024. 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 ornode, digital returns processed in stores.stores, and coupon behaviors.

Net sales decreased $1.2$610 billion,million, or (7.2%4.0%), to $15.4$14.8 billion for 2024.2025.

The decrease was driven by an approximately 3%4% decrease in average transaction value as well as a decrease of approximately 4% in transaction volume.

Sales decreased across all lines of business, except for Accessories.Accessories, Accessorieswhich increased approximately 9%2% during 2024 driven by Sephora sales increasing over 25%. Sephora sales exceeded $1.8 billion in 2024.2025.

Gross margin is calculated as net sales less cost of merchandise sold. Gross margin in 20242025 was 37.2%37.5% of net sales, an increase of 5034 basis points to last year. The increase inwas grossdriven marginby strong inventory management, merchandise mix, and moderating shrink levels. Strong inventory management was driven by lowerfewer freightclearance costs and strong inventory managementmarkdowns, as our inventory decreased 7% to last year, and receipts for the year were down 5% to last year as we continue to benefit from operating with greater flexibility. This was partially offset by elevated shrink levels.8%.

DepreciationThe decrease in depreciation and amortization decreased in 2024,2025 was primarily driven by reducedlower capital spending in technology. This was partially offset by increased store investments, including Sephora shopsspend and queuingclosed lines.locations.

WeIn 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 in 2024.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 lease gains, where upon the remeasurement, the reduction recorded to the lease liability was greater than the remaining value of the related ROU asset.

In addition to reporting our financial results in accordance with generally accepted accounting principles (GAAP) for fiscal 2024,, this Annual Report on Form 10-K contains certain non-GAAP financial results, including adjusted operating income, adjusted net incomeincome, and adjusted diluted earnings per share. These adjusted results exclude the gains, impairments, and other costs associated with the closing of 27 underperforming stores andstores, our San Bernardino, California and Monroe, Ohio E-commerce Fulfillment Center,Centers and settlement of a credit card interchange fee lawsuit, as we believe such costs and chargesitems are not representative of our normal business activity. We believe these non-GAAP measures are useful, as they are more representative of our core business, enhance comparability across reporting periods and to industry peers, and align with the measures used by management to evaluate the Company’s performance. The adjusted, non-GAAP results are provided and should be evaluated in addition to, and not as an alternative for, our results reported in accordance with GAAP. Shown belowin the following table is a reconciliation of each non-GAAP measure referenced throughout this report to the most comparable GAAP measure. No adjustments were made to our results for fiscal yearsyear 2023 and 2022 and therefore these results are not included in the table below. NetOperating income was $717 million and net income was $317 million, or $2.85 per diluted share, in 2023, and a net loss of $19 million, or ($0.15) per diluted share, in 2022.2023.

Our capital allocation strategy is to invest to maximize our overall long-term return and maintain a strong balance sheet. We follow a disciplined approach to capital allocation based on the following priorities: first we invest in our business to drive long-term profitable growth; second we pay a quarterly dividend; third we will completecapitalize on opportunities to further reduce our debt reductionand transactions,overall leverage, when appropriate; and fourth, when appropriate, we return excess cash to shareholders through our share repurchase program.

We will continue to invest in the business, as we plan to invest approximately $400$350 to $425$400 million in 2025,2026 whichtowards includesour thestrategic investments to complete the roll out of Sephora, expansion of impulse queuing lines, omnichannel enhancements, and two new store openings.priorities. On MarchFebruary 11,25, 2025,2026, our Board of Directors declared a quarterly cash dividend of $0.125 per share. The dividend will be paid on April 2,1, 20252026 to all shareholders of record at the close of business on March 21,18, 2025.2026. AlthoughIn the second quarter of 2025, we remainissued committed$360 to returning capital to shareholders, this reductionmillion in theaggregate quarterlyprincipal dividend allows for greater balance sheet flexibility. In June 2024, we completed a voluntary redemptionamount of the10.000% remainingsenior $113 million of outstanding 9.50%secured notes due May2030; 15,in 2025.addition $353 million in aggregate principal amount of our 4.25% notes matured and were repaid. In the fourth quarter of 2025, we reduced our outstanding debt by $87 million in aggregate principal through repurchases of various notes on the open market. We did not complete any share repurchases during fiscal 2024.2025.

Our period-end cash and cash equivalents balance decreasedincreased to $674 million from $134 million from $183 million in 2023.2024. Our cash and cash equivalents balance includes short-term investments of $9$555 million and $15$9 million as of January 31, 2026, and February 1, 2025, and February 3, 2024, respectively. Our investment policy is designed to preserve principal and liquidity of our short-term investments. This policy allows investments in large money market funds or in highly rated direct short-term instruments. We also place dollar limits on our investments in individual funds or instruments.

Non-GAAP financial measure. Please see the “Adjusted Free Cash Flow (Non-GAAP measure)” for a reconciliation of adjusted free cash flow to net cash provided by operating activities to adjusted free cash flow.activities.

Operating activities generated cash of $1.4 billion in 2025 compared to $648 million in 2024 compared to $1.2 billion in 2023.2024. Operating cash flow decreasedincreased due to a lowerhigher net incomeincome, partially driven by a $129 million gain recognized with respect to settlement of a credit card interchange fee lawsuit and inventory increasingdecreasing 2%7% to last year as we invested into private brand inventory. Receipts decreased 5% in 2024 compared to aan decreaseincrease of 9%2% in 2023 due to the private brand investment.2024.

Net cash used in investing activities decreased $95$134 million to $467$333 million in 2024.2025. The decrease was primarily driven by lower capital spend during the year on the expansion of our E-commerce Fulfillment center in Etna, Ohio, which was completed in 2025, and fewer Sephora shop openings and other investments, consistent with our reduced capital expenditure plans for fiscal 2025. Additionally in 2025, we received $54 million in proceeds from sale of property and equipment primarily due to the sale of corporate and other properties, compared to $6 million in proceeds in 2024.

At the end of 2024,2025, we had a Sephora at Kohl's shop-in-shop ("Sephora shop") presence in over 1,0001,100 of our stores, including 861855 full size 2,500 square foot Sephora shops and 190294 small format Sephora shops. We also hadsubstantially 350completed locationsthe withrollout of impulse queuing lines,lines launchedacross 200our Babiesstore "R" Us shops,fleet and had sixtwo new store openings, including one relocation.openings. In 2025,2026, we anticipate capital expenditures of approximately $400$350 to $425$400 million,million whichas includes the investments to complete the roll out of Sephora, expansion of impulse queuing lines, omnichannel enhancements, and two new store openings. We willwe continue to invest in our business, including enhancing our omnichannel capabilities.

During 2024,2025, Moody's downgraded our corporate credit rating from Ba3 to B2 and revised their outlook to stable, and S&P downgraded our senior unsecuredcorporate credit rating from BBBB- to BB-, Moody's downgraded our rating from Ba3 to B1, and Fitch downgraded our rating from BBB- to BB. Fitch revised their outlook to stable while S&P and Moody's reaffirmed their outlook at negative.B+.

As of FebruaryJanuary 1,31, 2025,2026, our corporate credit ratings and outlook were as follows:

In 2024,2025, we had net$290 borrowingsmillion of $198net millionrepayments on our $1.5 billion credit facility compared to net borrowings of $7$198 million in 2023.2024. BorrowingsThere were no outstanding borrowings under the revolving credit facility, recorded as short-term debt, hadas $290of millionJanuary outstanding31, as2026. As of February 1, 2025, andthere hadwas $92$290 million asoutstanding ofunder Februarythe 3,revolving 2024.credit facility.

In the second quarter of 2024,2025, we completedissued a$360 voluntarymillion redemptionaggregate principal amount of 10.000% senior secured notes due 2030 and received proceeds of $357 million, net of the remainingdebt $113discount. millionAlso, during the second quarter of outstanding2025, 9.50% notes due May 15, 2025. In February 2023, $164$353 million in aggregate principal amount of our 3.25%4.25% notes matured and was repaid, and in December 2023, $111 million in aggregate principal amount of our 4.75% notes matured and waswere repaid.

In addition to the other information set forth in this Quarterly Report on Form 10-Q, careful consideration should be taken of the risk factors discussed in Part I, Item 1A, “Risk Factors,” in our Annual Report on Form 10-K for the fiscal year ended January 31, 2026, and in Part II, Item 1A, “Risk Factors” of our Quarterly Report on Form 10-Q for the first quarter of 2026 ended May 2, 2026. These risk factors could materially and adversely affect our business, financial condition, results of operations, and liquidity. Additional risks and uncertainties not currently known to us or that we currently deem immaterial may also have a material adverse effect on our business operations.

There have been no significant changes in the Risk Factors described in our 2025 Form 10-K, exceptother than as set out in our Quarterly Report on Form 10-Q for the quarter ended May 2, 2026, in Item 1A of Part II and as follows:

Changes in global trade policiespolicies, tariff imposition, and thetariff imposition of tariffsrecoveries could increase our costscosts, distort gross margin comparability, and disrupt our supply chain.

The majority of goods we source are manufactured outside of the United States, primarily in Asia. Consequently, our business is subject to risks associated with foreign trade, including changes in trade policy. Recent or potential impositions of new or increased tariffs on imported products, or the removal of de minimis thresholds for direct-to-consumer imports, could increase our merchandise costs and have a material adverse effect on our business, results of operations, and liquidity. On February 20, 2026,Following the United States Supreme Court issueddecision a ruling striking down certaininvalidating tariffs previously imposed under the IEEPA.IEEPA, While this ruling haswe initiated arefund claims and have received tariff refunds. Remaining or future refund process,claims thecontinue availability,to be subject to uncertainty, including with respect to administrative processing, legal entitlement, timing, and amountultimate of such refunds remain uncertain and subject to further legal and administrative developments.receipt. Following thisthe Supreme Court decision, the U.S. presidential administration invokedtook actions to impose tariffs on imports from various countries under alternative authorities, including Section 122 of the Trade Act of 1974, toalongside imposepotential newactions tariffsunder onother importstrade from various countries.authorities. These and other trade and tariff-related actions may be subject to legal challenge, judicial reviews, stays, or appeals, which could result in further volatility in our merchandise costs and supply chain.chain, erode or offset benefits from prior tariff recoveries, cause supply chain delays, or necessitate sourcing realignments. If we are unable to diversify our sourcing, divert production or sourcing away from specific countries to avoid tariffs, or otherwise successfully mitigate the impact of these trade policies, our gross margins, the comparability of our operating results, costs of merchandise sold, results of operations, and competitive position could be adversely affected. Furthermore, retaliatory trade measures by other countries could increase the costs of our operations or limit our access to critical raw materials or merchandise.

For purposes of the following discussion, unless noted, all references to "the quarter” and “the second quarter” are for the three fiscal months (13 weeks) ended August 1, 2026 or August 2, 2025. References to "year to date" and "first half" are for the six fiscal months (26 weeks) ended August 1, 2026 or August 2, 2025. References to "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 and10-K, in Part II Item 1A of thisour Quarterly Reports on Form 10-Q,10-Q for the first and second quarters of 2026, 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.

Kohl's is a leading omnichannel retailer operating 1,151 stores and a website (www.Kohls.com) as of MayAugust 2,1, 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 firstsecond quarter include:

Selling, general, and administrative ("SG&A") expenses decreased 1.6%,0.9%, to $1.1$1.2 billion. As a percentage of total revenue, SG&A expenses were 36.2%,33.8%, anconsistent increasewith ofthe 15prior basis points year-over-year.year.

Operating cash flow was a$552 usemillion ofcompared $74to million.$598 million in the prior year.

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,curated and more balanced assortment that fulfills needs acrossof all customers, we are reestablishing Kohl’s as a leader in value and quality, and we are delivering a frictionless shopping experience to customers across our omnichannel platforms.

Net sales decreased 1.7%0.9% in the firstsecond quarter of 2026 comparedand 1.2% year to thedate first quarter of 2025.2026.

The decrease in the firstsecond quarter was driven by an equal decrease in average transaction value and in transaction volume. The decrease year to date was driven by a 2% decrease in transaction volume of approximately 4%, offset by an increase in average transaction value of approximately 2%.1%.

In the firstsecond quarter,quarter Women's,and year to date 2026, Home, Accessories, and Children's net sales performed better than the total companyCompany average. Year to date 2026, Women's net sales also performed better than the total Company average.

Comparable sales decreased 1.1%.0.9% in the second quarter of 2026 and 1.0% year to date 2026. 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%2.8% in the second quarter of 2026 and digital3.4% year to date 2026. Digital penetration represented 26%27% of net sales in the second quarter of 2026 and 26% year to date 2026, compared to 24%26% in the firstsecond quarter of 2025 and 25% year to date 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.

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

Other revenue decreased $15$2 million in the second quarter of 2026 and $17 million year to date 2026, 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.

Gross margin is calculated as net sales less cost of merchandise sold. For the firstsecond quarter of 2026, gross margin was 39.9%43.0% of net sales,sales and 41.5% of net sales year to date 2026, an increase of 4305 and 162 basis points to last year.year, respectively. The increase was causeddriven by merchandisetariff mix with increased proprietary brand penetration,refunds, partially offset by elevatedrepayments shippingto costsvendors drivenand byinvestments to drive value for our digital sales increase of 4% year over year.customers.

During the second quarter, SG&A expenses decreased $19$11 million, or 1.6%,0.9%, to $1.1$1.2 billion. As a percentage of revenue, SG&A was flat to last year. Year to date 2026, SG&A expenses decreased $30 million, or 1.3%, to $2.3 billion. As a percentage of revenue, SG&A deleveraged by 156 basis points. The decreasedecreases infor SG&Aboth expensesperiods waswere driven by lowerexpense savings across stores, corporate, and credit, which are included in corporate and other costs, primarily from reduced credit expenses.costs.

Net interest expense decreased in the first half of 2026 due to a gaingains on extinguishment of debt related to the open market repurchases of long term debt completedrecognized in thenet firstinterest quarter of 2026expense and no outstanding balance on the revolving credit facility. The reductions were partially offset by interestgains on ourextinguishment 2030of notes,debt issuedresulted infrom open market purchases of long term debt, totaling $6 million for the second quarter ofand 2025.$15 million year to date.

We expect that our operations will continue to be influenced by general economic conditions, including food, fuel and energy prices, higherunemployment unemployment,levels, 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 fluid. On February 20, 2026, the U.S. Supreme Court issued a ruling in Learning Resources, Inc. v. Trump striking down certain tariffs previously imposed under IEEPA. While this ruling may lead to potential refunds for duties paid during 2025 and the first quarter of 2026, the availability, timing, and amount of such refunds remain uncertain and subject to further legal and administrative developments. Following this decision, the U.S. administration invoked Section 122 of the Trade Act of 1974 to impose new tariffs on imports, effective February 24, 2026. These Section 122 tariffs are currently subject to legal challenge; in May 2026,Although the U.S. Court of International Trade issued a ruling finding the Section 122 tariffs unlawful,unlawful althoughin thisMay ruling2026, isduty currentlycollections stayedcontinued pendingunder appeal.a judicial stay until the 150-day statutory window expired on July 24, 2026. The administration subsequently transitioned to replacement trade actions, implementing new tariffs under authorities such as Section 301. We continue to pay applicable duties under these dutiesauthorities, while monitoring the legal developments. FurtherThe global trade environment remains fluid and further tariff-related actions may increase merchandise costs, affect merchandise availability, and impact our operational results.

The Company paid approximately $190 million in IEEPA tariffs betweenduring Februaryfiscal 2025 and February 2026. We submitted claims seeking approximately $140$185 million in refunds of previously paid IEEPA tariffs as part of the Phase 1 and Phase 2 CAPE tariff refunds. WeAs of August 1, 2026, the Company has received approximately $150 million in refund payments. The Company’s remaining IEEPA refund claims continue to monitorbe developmentsaccounted for as gain contingencies. Uncertainty remains regarding subsequentthe administrativetiming, phasesamount forand ourultimate remainingreceipt entries.of any further refunds.

We will continue to invest in the business, as we plan to invest approximately $350 to $400 million in capital expenditures in 2026 towards our strategic priorities. On MayAugust 20,18, 2026, our Board of Directors declared a quarterly cash dividend of $0.125 per share. The dividend will be paid on JuneSeptember 24,23, 20262026, to all shareholders of record at the close of business on JuneSeptember 10,9, 2026. During the firstsecond quarter of 2026, we reduced our outstanding debt by $50$63 million aggregate principal through repurchases of various notes on the open market. WeYear to date, we have reduced our outstanding debt by $113 million through repurchases. Under our existing $3 billion board authorization, we are notresuming currently planning anyour share repurchases.repurchase program with plans to buy back approximately $100 million in stock in 2026.

Our period-end Cashcash and cash equivalents balance increased to $429$821 million from $153$174 million in the firstsecond quarter of 2025. Our Cash and cash equivalents balance includes short-term investments of $273$682 million and $7$17 million as of MayAugust 2,1, 20262026, and MayAugust 3,2, 2025, respectively. Our investment policy is designed to preserve principal and liquidity of our short-term investments. This policy allows investments in large money market funds or in highly rated direct short-term instruments. We also place dollar limits on our investments in individual funds or instruments.

Operating activities usedprovided $74$478 million of cash in the first quarterhalf of 2026 compared to $92$506 million in the first quarterhalf of 2025. The decrease in cash usedprovided inby operating activities is dueprimarily todriven theby timing of payments and inventory receipts year over year.payments.

Investing activities used $84$153 million in the first quarterhalf of 2026 compared to $108$179 million in the first quarterhalf of 2025. The decrease in cash used in investing activities was primarily driven by our reduced capital expenditure plans for fiscal 2026.

During the firstsecond quarter of 2026, Moody'sS&P revisedupgraded their outlook to positive.stable.

As of MayAugust 2,1, 2026, our corporate credit ratings and outlook were as follows:

CashFinancing dividendactivities paymentsused were $14$178 million ($0.125of per share)cash in both the first quarterhalf of 2026 andcompared to $287 million of cash in the first quarterhalf of 2025.

In the first quarterhalf of 2026, we had no net activity on our $1.5 billion credit facility, compared to net borrowingsrepayments of $255$215 million in the first quarterhalf of 2025. Borrowings outstanding under the revolving credit facility, recorded as short-term debt, were $0 as of MayAugust 2,1, 2026, and $545$75 million as of MayAugust 3,2, 2025.

Also in the first quarterhalf of 2026, we reduced our outstanding debt by $50$113 million aggregate principal through repurchases of various notes on the open market.

There was no cash used for treasury stock purchases in the first quarterhalf of 2026 or 2025. Share repurchases are discretionary in nature. The timing and amount of repurchases are based upon available cash balances, our stock price, and other factors. AsUnder our existing $3 billion board authorization, we continueare resuming our share repurchase program with plans to solidifybuy ourback balanceapproximately sheet$100 and improve our business results we will look at resuming share repurchasesmillion in thestock future.in 2026.

The increases in our working capital and current ratio are driven by decreased borrowings under the revolving credit facility, the repayment of $353 million of our 4.25% notes that matured following the first quarter of 2025, and an increase in cash and cash equivalents.

Our senior secured, asset based revolving credit facility contains customary events of default and financial, affirmative and negative covenants, including but not limited to, a springing financial covenant relating to our fixed charge coverage ratio and restrictions on indebtedness, liens, investments, asset dispositions, and restricted payments. As of MayAugust 2,1, 2026, we were in compliance with all covenants.

We have not provided any financial guarantees arising from arrangements with unconsolidated entities or persons as of MayAugust 2,1, 2026.