Kohl's Net Income Soars 132% on Legal Settlement, Despite Revenue Dip

TL;DR

**Kohl's is patching up declining sales with a one-time legal windfall and high-cost debt, signaling underlying weakness despite the headline profit jump.**

AI Summary

Kohl's Corporation reported a significant increase in net income for the three months ended August 2, 2025, reaching $153 million, up from $66 million in the prior year, representing a 131.8% increase. Diluted earnings per share also rose substantially to $1.35 from $0.59. This improvement occurred despite a decrease in total revenue, which fell to $3,546 million from $3,732 million, a 4.98% decline. The company recognized a $129 million gain from a legal settlement related to credit card interchange fees, which significantly boosted operating income to $279 million from $166 million. Strategic changes include the closure of the Monroe, Ohio E-commerce Fulfillment Center, incurring $11 million in impairments and other costs, and the reversal of $11 million in exit costs from favorable landlord negotiations for the San Bernardino E-commerce Fulfillment Center and 27 underperforming stores. Debt management saw the repayment of $353 million in 4.25% notes due July 2025, and the issuance of $360 million in 10.000% senior secured notes due 2030, increasing long-term debt to $1,520 million from $1,174 million. Merchandise inventories decreased to $2,994 million from $3,151 million year-over-year, indicating inventory management efforts.

Why It Matters

This filing reveals Kohl's is navigating a challenging retail environment by strategically managing costs and leveraging non-operating gains. The substantial increase in net income, driven by a $129 million legal settlement, masks a continued decline in net sales across key categories like Women's and Men's, which could concern investors focused on core retail performance. The issuance of high-yield 10.000% senior secured notes signals a need for capital, potentially reflecting tighter credit conditions or a strategic pivot, impacting the company's financial flexibility and competitive standing against rivals like Macy's and Target. Employees at the Monroe, Ohio E-commerce Fulfillment Center face job displacement due to closure, while customers might see store closures impacting their shopping options.

Risk Assessment

Risk Level: medium — While net income surged due to a $129 million legal settlement, net sales declined by 4.98% for the three months ended August 2, 2025, indicating ongoing operational challenges. The issuance of $360 million in 10.000% senior secured notes due 2030, following credit rating downgrades from S&P (BB to BB-) and Moody's (Ba3 to B1, then B1 to B3), suggests increased borrowing costs and potential financial strain, despite compliance with debt covenants as of August 2, 2025.

Analyst Insight

Investors should look beyond the impressive net income figure and scrutinize the declining sales trends and increasing cost of debt. Consider if the one-time legal settlement truly reflects a sustainable turnaround or merely a temporary boost. Monitor future revenue performance and debt servicing capabilities closely before making investment decisions.

Financial Highlights

debt To Equity

N/A

revenue

$3,546M

operating Margin

7.87%

total Assets

N/A

total Debt

$1,520M

net Income

$153M

eps

$1.35

gross Margin

N/A

cash Position

N/A

revenue Growth

-4.98%

Revenue Breakdown

Key Numbers

• $153M — Net income for Q2 2025 (Increased from $66M in Q2 2024, a 131.8% rise.)
• $3,546M — Total revenue for Q2 2025 (Decreased from $3,732M in Q2 2024, a 4.98% decline.)
• $129M — Gain on legal settlement (Boosted operating income in Q2 2025.)
• $1.35 — Diluted EPS for Q2 2025 (Increased from $0.59 in Q2 2024.)
• $1,520M — Long-term debt as of August 2, 2025 (Increased from $1,174M as of February 1, 2025.)
• $360M — Aggregate principal amount of 10.000% senior secured notes (Issued in May 2025, due 2030.)
• $353M — 4.25% notes repaid (Matured in July 2025.)
• $2,994M — Merchandise inventories as of August 2, 2025 (Decreased from $3,151M as of August 3, 2024.)
• 10.000% — Coupon rate on new senior secured notes (Issued in May 2025, due 2030.)
• 175 — Basis point increase (Total interest rate increase on 3.375% notes due May 2031 since issuance.)

Key Players & Entities

• KOHL'S Corp (company) — registrant
• S&P (company) — credit rating agency
• Moody's (company) — credit rating agency
• Monroe, Ohio E-commerce Fulfillment Center (company) — closed facility
• San Bernardino, California E-commerce Fulfillment Center (company) — facility with reversed exit costs
• New York Stock Exchange (regulator) — exchange where KSS is listed
• Chief Executive Officer (person) — Chief Operating Decision Maker (CODM)
• FASB (regulator) — Financial Accounting Standards Board
• SEC (regulator) — Securities and Exchange Commission
• Bloomberg (company) — financial news provider

FAQ

Risk Factors

• E-commerce Fulfillment Center Closures [medium — operational]: The closure of the Monroe, Ohio E-commerce Fulfillment Center incurred $11 million in impairments and other costs. This highlights operational adjustments and associated expenses impacting profitability.
• Increased Debt Load [high — financial]: The company issued $360 million in 10.000% senior secured notes due 2030, increasing long-term debt to $1,520 million from $1,174 million. This higher interest expense could pressure future earnings.
• Legal Settlement Impact [medium — legal]: A $129 million gain from a legal settlement related to credit card interchange fees significantly boosted net income. Reliance on such one-time gains can mask underlying operational performance.
• Seasonality and Consumer Spending [medium — market]: The business is subject to seasonality, and results for any quarter are not necessarily indicative of full-year performance. Consumer spending patterns can significantly impact revenue.
• Inventory Management [medium — operational]: Merchandise inventories decreased to $2,994 million from $3,151 million year-over-year, indicating efforts to optimize stock levels. However, insufficient inventory could lead to lost sales.

Industry Context

Kohl's operates in the highly competitive retail sector, facing pressure from both traditional department stores and online giants. The industry is characterized by evolving consumer preferences, the need for strong omnichannel capabilities, and sensitivity to economic conditions. Recent trends include a focus on inventory optimization and strategic real estate management.

Regulatory Implications

Kohl's must comply with various financial reporting regulations, including U.S. GAAP. The company's disclosures on debt, restructuring, and market risk are subject to SEC oversight. Any misstatements or non-compliance could lead to penalties and reputational damage.

What Investors Should Do

1. Monitor the impact of increased debt servicing costs.
2. Analyze the sustainability of net income growth.
3. Evaluate inventory management effectiveness.
4. Assess the impact of operational restructuring.

Key Dates

• 2025-08-02: End of Second Quarter 2025 — Reporting period for the 10-Q, showing a significant net income increase driven by a legal settlement, despite revenue decline.
• 2025-07-01: Maturity of 4.25% notes — Kohl's repaid $353 million in notes, impacting its debt structure and cash outflow.
• 2025-05-01: Issuance of 10.000% senior secured notes — Kohl's issued $360 million in new debt, increasing its long-term debt and interest expense.
• 2025-02-01: End of Fiscal Year 2025 — Reference point for year-over-year comparisons of balance sheet items like long-term debt and inventory.
• 2024-08-03: End of Second Quarter 2024 — Prior year period for comparison, showing a lower net income of $66 million and higher inventory levels.

Glossary

CODM

Chief Operating Decision Maker, the individual responsible for assessing company performance and allocating resources. (In Kohl's case, the CEO is the CODM, and net income is the primary metric reviewed for performance assessment.)

Omnichannel retailer

A retailer that integrates different sales channels (e.g., online, physical stores, mobile) to provide a seamless customer experience. (Describes Kohl's business model, operating as a single reportable segment.)

Supplier Finance Program

A program where a third-party financier pays a company's suppliers early at a discount, allowing the company to manage its payment terms. (Kohl's has such a program, with $226 million in related payables as of August 2, 2025.)

Restructuring Reserve

An account set up to cover costs associated with significant business reorganizations, such as store or facility closures. (Kohl's recognized $11 million in costs related to the closure of its Monroe, Ohio E-commerce Fulfillment Center.)

Senior Secured Notes

Debt instruments that are backed by specific collateral, giving bondholders a higher claim on assets in case of default compared to unsecured debt. (Kohl's issued $360 million of these notes in May 2025, increasing its debt burden.)

Diluted EPS

Diluted Earnings Per Share, a measure of a company's profit allocated to each outstanding share of common stock, including the effect of dilutive securities. (Kohl's reported a significant increase in diluted EPS to $1.35 from $0.59, driven by higher net income.)

Year-Over-Year Comparison

Compared to the prior year's second quarter, Kohl's reported a significant 131.8% increase in net income to $153 million, largely due to a $129 million gain from a legal settlement. This occurred despite a 4.98% decline in total revenue to $3,546 million. Long-term debt has increased to $1,520 million following the issuance of new, higher-interest notes, while merchandise inventories have been reduced. New risks related to operational restructuring and increased debt servicing costs are now more prominent.

Key Financial Figures

• $0.01 — August 29, 2025 Common Stock, Par Value $0.01 per Share, 112,074,683 shares outstandi

Filing Documents

• kss-20250802.htm (10-Q) — 1219KB
• kss-ex31_1.htm (EX-31.1) — 17KB
• kss-ex31_2.htm (EX-31.2) — 17KB
• kss-ex32_1.htm (EX-32.1) — 10KB
• kss-ex32_2.htm (EX-32.2) — 10KB
• img75200013_0.jpg (GRAPHIC) — 51KB
• 0000950170-25-113028.txt ( ) — 6013KB
• kss-20250802.xsd (EX-101.SCH) — 893KB
• kss-20250802_htm.xml (XML) — 989KB

Financial Statements

Financial Statements: 3 Consolidated Balance Sheets 3 Consolidated Statements of Operations 4 Consolidated Statements of Changes in Shareholders' Equity 5 Consolidated Statements of Cash Flows 6

Notes to Consolidated Financial Statements

Notes to Consolidated Financial Statements 7 Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

Management's Discussion and Analysis of Financial Condition and Results of Operations 16 Item 3.

Quantitative and Qualitative Disclosures about Market Risk

Quantitative and Qualitative Disclosures about Market Risk 25 Item 4.

Controls and Procedures

Controls and Procedures 25 PART II OTHER INFORMATION 26 Item 1.

Legal Proceedings

Legal Proceedings 26 Item 1A.

Risk Factors

Risk Factors 26 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 26 Item 5. Other Information 26 Item 6. Exhibits 27

Signatures

Signatures 28 Table of Contents

FINANCI AL INFORMATION

PART I. FINANCI AL INFORMATION

Financi al Statements

Item 1. Financi al Statements KOHL'S CORPORATION CONSOLIDATED B ALANCE SHEETS (Dollars in Millions) August 2, 2025 February 1, 2025 August 3, 2024 Assets (Unaudited) (Audited) (Unaudited) Current assets: Cash and cash equivalents $ 174 $ 134 $ 231 Merchandise inventories 2,994 2,945 3,151 Other 306 309 331 Total current assets 3,474 3,388 3,713 Property and equipment, net 7,113 7,297 7,502 Operating leases 2,363 2,394 2,507 Other assets 441 480 458 Total assets $ 13,391 $ 13,559 $ 14,180 Liabilities and Shareholders' Equity Current liabilities: Accounts payable $ 1,134 $ 1,042 $ 1,317 Accrued liabilities 1,159 1,263 1,185 Borrowings under revolving credit facility 75 290 410 Current portion of: Long-term debt — 353 353 Finance leases and financing obligations 84 81 81 Operating leases 96 102 92 Total current liabilities 2,548 3,131 3,438 Long-term debt 1,520 1,174 1,173 Finance leases and financing obligations 2,409 2,456 2,574 Operating leases 2,672 2,703 2,795 Deferred income taxes 54 28 95 Other long-term liabilities 261 265 275 Shareholders' equity: Common stock 1 1 2 Paid-in capital 3,578 3,560 3,546 Treasury stock, at cost ( 771 ) ( 767 ) ( 2,579 ) Retained earnings 1,119 1,008 2,861 Total shareholders' equity $ 3,927 $ 3,802 $ 3,830 Total liabilities and shareholders' equity $ 13,391 $ 13,559 $ 14,180 See accompanying Notes to Consolidated Financial Statements 3 Table of Contents KOHL'S CORPORATION CONSOLIDATED STAT EMENTS OF OPERATIONS (Unaudited) Three Months Ended Six Months Ended (Dollars in Millions, Except per Share Data) August 2, 2025 August 3, 2024 August 2, 2025 August 3, 2024 Net sales $ 3,347 $ 3,525 $ 6,396 $ 6,703 Other revenue 199 207 383 411 Total revenue 3,546

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Basis of Presentation The accompanying Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States ("U.S. GAAP") for interim financial information. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for fiscal year end Consolidated Financial Statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. For further information, refer to the Consolidated Financial Statements and related footnotes included in our Annual Report on Form 10-K for the fiscal year ended February 1, 2025 (Commission File No. 1-11084) as filed with the Securities and Exchange Commission ("SEC"). Certain amounts in the Consolidated Financial Statements and related footnotes may not foot or crossfoot due to rounding. Due to the seasonality of the business of Kohl's Corporation (the "Company," "Kohl's," "we," "our," or "us"), results for any quarter are not necessarily indicative of the results that may be achieved for a full fiscal year. Reportable Segments We are an omnichannel retailer that operates as a single reportable segment. Our Chief Operating Decision Maker ("CODM") is our Chief Executive Officer . The net income presented in the Consolidated Statements of Operations is the financial information reviewed by the CODM. The CODM assesses the performance of the Company and decides how to allocate resources using net income that is reported on the Consolidated Statement of Operations. Net income is used to monitor budget versus actual results. The CODM regularly reviews information consistent with the Consolidated Statements of Operations. Supplier Finance Programs The Company has an agreement with a third-party financing provider to facilitate a supplier financing program. The program provides participating supplier

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