Kohl's Q3 Net Income Plunges 64% Amid Revenue Dip

TL;DR

**KSS is struggling with core sales, and a one-time legal settlement is papering over a weak Q3, making this a risky bet for the upcoming holiday season.**

AI Summary

Kohl's Corporation reported a significant decline in net income for the three months ended November 1, 2025, falling to $8 million from $22 million in the prior year, a 63.6% decrease. Total revenue also decreased by 3.6% to $3,575 million from $3,710 million in the same period. For the nine months ended November 1, 2025, net income increased to $147 million from $61 million, largely due to a $129 million gain from a credit card interchange fee legal settlement. Net sales for the nine-month period decreased by 4.0% to $9,803 million from $10,210 million. The company repaid $353 million of 4.25% notes in July 2025 and issued $360 million of 10.000% senior secured notes due 2030 in May 2025, increasing long-term debt to $1,522 million from $1,174 million at February 1, 2025. Merchandise inventories decreased to $3,895 million from $4,099 million year-over-year, while borrowings under the revolving credit facility significantly reduced to $45 million from $749 million. The company also recognized $15 million in impairments, store closing, and other costs year-to-date 2025, including $11 million in asset impairments and $10 million in severance related to fulfillment center closures.

Why It Matters

Kohl's Q3 performance signals ongoing challenges in a competitive retail landscape, with a substantial 63.6% drop in net income and a 3.6% revenue decline. While a nine-month net income increase to $147 million appears positive, it's heavily skewed by a one-time $129 million legal settlement, masking underlying operational pressures. Investors should be wary of the declining sales across key categories like Women's and Children's, indicating a struggle to attract and retain customers against rivals like Macy's and Target. The strategic shift to higher-cost debt, such as the 10.000% senior secured notes, reflects a tougher borrowing environment and could impact future profitability and shareholder returns.

Risk Assessment

Risk Level: high — The company's net income for the three months ended November 1, 2025, plummeted by 63.6% to $8 million from $22 million in the prior year, indicating significant operational headwinds. Furthermore, the interest rate on their 3.375% notes due May 2031 has increased by 175 basis points since issuance due to credit rating downgrades, increasing debt servicing costs and reflecting heightened credit risk.

Analyst Insight

Investors should exercise caution and consider reducing exposure to KSS given the substantial Q3 net income decline and reliance on a one-time legal settlement for year-to-date profitability. Monitor upcoming sales figures closely, especially for the critical holiday quarter, as sustained revenue declines and increasing debt costs could further erode shareholder value.

Financial Highlights

revenue

$3,575M

total Debt

$1,522M

net Income

$8M

revenue Growth

-3.6%

Revenue Breakdown

Key Numbers

• $8M — Net income for Q3 2025 (63.6% decrease from $22 million in Q3 2024)
• $3,575M — Total revenue for Q3 2025 (3.6% decrease from $3,710 million in Q3 2024)
• $147M — Net income for nine months 2025 (Increased from $61 million in nine months 2024, largely due to legal settlement)
• $129M — Gain on legal settlement (Recognized in Q2 2025, significantly impacting nine-month net income)
• $9,803M — Net sales for nine months 2025 (4.0% decrease from $10,210 million in nine months 2024)
• $360M — Aggregate principal amount of 10.000% senior secured notes (Issued in May 2025, due 2030)
• $1,522M — Long-term debt as of November 1, 2025 (Increased from $1,174 million at February 1, 2025)
• $45M — Borrowings under revolving credit facility (Significantly reduced from $749 million at November 2, 2024)
• 175 basis points — Increase in interest rate on 3.375% notes due May 2031 (Due to credit rating downgrades since issuance)
• $3,895M — Merchandise inventories as of November 1, 2025 (Decreased from $4,099 million at November 2, 2024)

Key Players & Entities

• KOHL'S Corp (company) — registrant
• New York Stock Exchange (regulator) — exchange for KSS common stock
• S&P (company) — downgraded KSS credit rating
• Moody's (company) — downgraded KSS credit rating
• Chief Executive Officer (person) — Chief Operating Decision Maker (CODM)
• Monroe, Ohio E-commerce Fulfillment Center (company) — closure resulted in restructuring costs
• San Bernardino, California E-commerce Fulfillment Center (company) — closure resulted in restructuring costs
• FASB (regulator) — issued new accounting standards
• Sephora (company) — included in Accessories net sales

FAQ

Risk Factors

• Debt Management and Interest Expense [high — financial]: The company increased its long-term debt to $1,522 million from $1,174 million by issuing $360 million of 10.000% senior secured notes. This significant increase in debt, particularly at a high interest rate, raises concerns about future interest expenses and financial flexibility.
• Inventory Management [medium — operational]: Merchandise inventories decreased to $3,895 million from $4,099 million year-over-year. While this could indicate improved inventory control, a significant drop might also signal potential stock-outs or an inability to meet demand, impacting sales.
• Declining Profitability [high — financial]: Net income for the three months ended November 1, 2025, fell to $8 million from $22 million in the prior year, a 63.6% decrease. This sharp decline in short-term profitability is a significant concern for investors.
• Restructuring and Impairment Costs [medium — operational]: The company recognized $15 million in impairments, store closing, and other costs year-to-date 2025, including $11 million in asset impairments and $10 million in severance related to fulfillment center closures. These costs impact current earnings and signal ongoing operational adjustments.
• Reliance on Credit Facility Reduction [medium — financial]: Borrowings under the revolving credit facility significantly reduced to $45 million from $749 million. While this indicates improved liquidity or reduced short-term borrowing needs, the prior high utilization suggests potential past financial strain.

Industry Context

Kohl's operates in the highly competitive retail sector, facing pressure from both traditional department stores and online retailers. The industry is characterized by shifting consumer preferences, promotional intensity, and the ongoing need for omnichannel capabilities. Recent trends indicate a challenging environment for mid-tier department stores, requiring significant investment in inventory management, customer experience, and cost control to maintain market share.

Regulatory Implications

As a publicly traded company, Kohl's is subject to SEC regulations and U.S. GAAP reporting standards. The company must ensure accurate financial disclosures, particularly regarding debt obligations, revenue recognition, and restructuring charges. Any misstatements or failures to comply could result in regulatory scrutiny and penalties.

What Investors Should Do

1. Monitor debt levels and interest coverage ratios.
2. Analyze the drivers of the Q3 net income decline.
3. Evaluate inventory management effectiveness.
4. Assess the impact of restructuring and impairment charges.

Key Dates

• 2025-11-01: End of Q3 2025 reporting period — Reported a 63.6% decline in net income and a 3.6% decrease in total revenue compared to the prior year.
• 2025-07-01: Repayment of 4.25% notes — The company repaid $353 million of its notes, impacting its debt structure.
• 2025-05-01: Issuance of 10.000% senior secured notes — Issued $360 million in new debt, increasing long-term debt and raising the average interest rate on its debt.
• 2025-02-01: End of Fiscal Year 2025 — Reported total long-term debt of $1,174 million prior to the new debt issuance.

Glossary

CODM

Chief Operating Decision Maker, typically a high-level executive responsible for resource allocation and performance assessment. (In Kohl's case, the CEO is the CODM, and net income is the primary metric reviewed for performance and resource allocation.)

Supplier Finance Program

An arrangement where a third-party finances a company's payments to its suppliers, allowing suppliers to receive early payment at a discount. (Kohl's uses such a program, with related payables increasing significantly to $255 million as of November 1, 2025, indicating greater utilization.)

Restructuring Reserve

An amount set aside to cover costs associated with reorganizing a business, such as severance, store closures, or asset impairments. (Kohl's recognized $4 million in such costs in Q3 2025 and $15 million year-to-date, including impairments and severance for fulfillment center closures.)

Senior Secured Notes

Debt instruments that are backed by specific collateral, giving the 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 with a high 10.000% interest rate, increasing its overall debt burden.)

Year-Over-Year Comparison

Compared to the prior year's filing period, Kohl's has experienced a notable decline in short-term profitability, with Q3 net income dropping by 63.6% to $8 million on a 3.6% revenue decrease. While the nine-month net income was boosted by a legal settlement, underlying operational trends show a 4.0% decrease in net sales. The company has also significantly altered its capital structure, increasing long-term debt substantially while reducing reliance on its revolving credit facility, indicating a shift in its financing strategy.

Key Financial Figures

• $0.01 — vember 28, 2025 Common Stock, Par Value $0.01 per Share, 112,189,191 shares outstandi
• $5 — ange of: Finance lease liabilities ($5 ) ($74 ) Operating lease liabilitie
• $74 — Finance lease liabilities ($5 ) ($74 ) Operating lease liabilities 35

Filing Documents

• kss-20251101.htm (10-Q) — 1229KB
• kss-ex10_1.htm (EX-10.1) — 160KB
• 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
• img75223076_0.jpg (GRAPHIC) — 51KB
• 0001193125-25-306677.txt ( ) — 6258KB
• kss-20251101.xsd (EX-101.SCH) — 897KB
• kss-20251101_htm.xml (XML) — 1012KB

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 28

Signatures

Signatures 29 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) November 1, 2025 February 1, 2025 November 2, 2024 Assets (Unaudited) (Audited) (Unaudited) Current assets: Cash and cash equivalents $ 144 $ 134 $ 174 Merchandise inventories 3,895 2,945 4,099 Other 269 309 344 Total current assets 4,308 3,388 4,617 Property and equipment, net 7,028 7,297 7,472 Operating leases 2,354 2,394 2,500 Other assets 454 480 465 Total assets $ 14,144 $ 13,559 $ 15,054 Liabilities and Shareholders' Equity Current liabilities: Accounts payable $ 1,842 $ 1,042 $ 1,873 Accrued liabilities 1,240 1,263 1,245 Borrowings under revolving credit facility 45 290 749 Current portion of: Long-term debt — 353 353 Finance leases and financing obligations 85 81 80 Operating leases 95 102 93 Total current liabilities 3,307 3,131 4,393 Long-term debt 1,522 1,174 1,174 Finance leases and financing obligations 2,388 2,456 2,533 Operating leases 2,667 2,703 2,799 Deferred income taxes 76 28 78 Other long-term liabilities 254 265 273 Shareholders' equity: Common stock 1 1 2 Paid-in capital 3,588 3,560 3,554 Treasury stock, at cost ( 772 ) ( 767 ) ( 2,580 ) Retained earnings 1,113 1,008 2,828 Total shareholders' equity $ 3,930 $ 3,802 $ 3,804 Total liabilities and shareholders' equity $ 14,144 $ 13,559 $ 15,054 See accompanying Notes to Consolidated Financial Statements 3 Table of Contents KOHL'S CORPORATION CONSOLIDATED STAT EMENTS OF OPERATIONS (Unaudited) Three Months Ended Nine Months Ended (Dollars in Millions, Except per Share Data) November 1, 2025 November 2, 2024 November 1, 2025 November 2, 2024 Net sales $ 3,407 $ 3,507 $ 9,803 $ 10,210 Other revenue 168 203 551 614 Total r

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

View Full Filing

View this 10-Q filing on SEC EDGAR