Kohl's Corporation

Good morning and welcome to the Coles Corporation fourth quarter 2025 earnings conference call. All participants are in a listen-only mode. After the speaker's remarks, we will conduct a question and answer session. To ask a question at this time, you will need to press star followed by the number one on your telephone keypad. As a reminder, this conference call is being recorded. I would now like to turn the call over to Trevor Novotny, Director of Investor Relations. Thank you. Please go ahead.

Thank you. Certain statements made on this call, including those regarding our projected financial results, business outlook, and future initiatives, are forward-looking statements. These statements are based on current expectations and assumptions and are subject to certain risks and uncertainties that could cause cold actual results to differ materially from those projected. These risks and uncertainties include, but are not limited to, the factors described in item 1A of COLE's most recent annual report on Form 10-K, and as may be supplemented from time to time in COLE's other filings with the SEC, all of which are expressly incorporated here and by reference. Forward-looking statements relate to the date initially made, and COLE undertakes no obligation to update them. In addition, during this call, we may refer to certain non-GAAP financial measures. Please refer to the cautionary statement and reconciliation of these non-GAAP measures included in the investor presentation filed as an exhibit to our form 8K as filed with the SEC and available on our investor relations website. Please note that this call will be recorded. However, replays of the call will not be updated. So if you are listening to a replay, it is possible that the information discussed is no longer current and COLE assumes no obligation to update such information. With me this morning are Michael Bender, our chief executive officer, and Jill Tim, our chief financial officer. I'll now turn the call over to Michael.

Thank you, Trevor. Good morning, everyone. Thank you for joining Kohl's fourth quarter earnings call. Before I begin this morning, I want to express my sincere gratitude to the entire Kohl's team. 2025 was a year of substantial change and notable progress. I appreciate the way our teams adapted and committed to new ways of working for the business. We're ending 2025 in a stronger position than we started, though important work remains ahead of us. Thank you for your continued dedication and belief in Kohl's. During this transformational time for our business, we are taking a long-term view. We take accountability for our performance each quarter while making decisions for the long term. with the understanding that progress will not be a straight line. Over the past year, our efforts have been focused on resetting our foundation. This focus is intended to stabilize the business and strengthen our operational ability to build for a stronger future. In 2025, we made meaningful progress and this aggregate work has us moving forward in the right way. While we've made progress addressing issues and strengthening areas of our foundation, that work will continue to be the focus for most of 2026. Addressing operational opportunities and modernizing our processes and ways of working is critical for what comes next for Kohl's, and there are no shortcuts. We're confident that the work we're investing in now is essential to improving our business and getting back to growth. During today's call, we would like to discuss three items with you. First, we'll review our fourth quarter performance. Next, I will provide an update on how we will execute against our key initiatives in 2026. And lastly, Jill will give more details on our Q4 financial performance, as well as give guidance to 2026. Although we are not pleased with our top line results in the fourth quarter, as comparable sales decelerated to down 2.8%. We are pleased with our strong inventory discipline and expense management, helping to deliver diluted earnings per share of $1.07, well ahead of last year. We also strengthened our balance sheet, ending the year in a strong cash position with no borrowings on our revolver. While not the primary driver of these sales results, severe weather was responsible for about 70 basis points to our comparable sales decline as approximately half of our stores were closed during the winter storms toward the end of January. Beyond the impact of winter storms, we have identified two primary factors impacting our Q4 top line results. First, we have an opportunity to better execute our fall seasonal business. The softness in this category uncovered some operational opportunities for us with regard to our inventory depth and allocation. We do not consistently have the right product in the right quantity in the right places. This issue was outsized in our smaller format stores, which meant we were not consistently able to meet the demand in key moments. However, we continue to experience positive growth in our year-round businesses, including the emphasis on core basics and essentials, which were not impacted by inventory allocation issues. Second, we needed to offer breakthrough pricing during our key holiday shopping periods to drive more excitement for customers to choose Kohl's. During the fourth quarter, we lost some competitive ground during high traffic shopping windows, including Black Friday, Cyber Monday, and the week following Christmas. We know consumers are more value conscious And there is opportunity for us to regain share during these windows through strong promotional statements that better align to our customer needs and priorities. Consistent and differentiated value statements across marketing, in-store, and online will be a catalyst to improve our performance. While acknowledging and addressing these issues from Q4, we remain committed to the path we're on to improve the business. This year we made significant progress, resulting in a 300 basis point improvement in our comparable sales from last year. There were a number of areas that drove progress this year, beginning with our Kohl's card customer who improved 120 basis points from the third quarter now running down mid single digits. While this performance is not where we ultimately want it to be, we are encouraged by the significant progress we've made from the first half of the year, where these shoppers declined in the mid-teens. The re-engagement of this shopper is instrumental to Kohl's long-term success, as they are the most productive customer we serve. Additionally, we remain pleased with the performance of our non-Kohl's card customers and new customer acquisitions. Overall, we are proud of the progress we've made toward re-engaging our Kohl's card customers while continuing to attract and serve new customers. Next, we have made solid progress across our proprietary brand portfolio. Although these brands were down 3% overall in the quarter, our proprietary apparel was flat with the decline primarily driven by our home business. Our junior's business, which grew 8% in the quarter, continues to benefit from investments in our proprietary brand. So we are furthest along in our progress with this category as it has faster turns and shorter lead times. We're excited about taking this momentum from the junior's business and expanding the efforts throughout the remainder of the women's category. Petite is another area within women's that continued its great momentum, running up 26% to last year. This category benefited from the in-store presence we built with key proprietary brands LC Lauren Conrad and Simply Vera Vera Wang. Our men's and kids' departments also showed strength in proprietary brands, both running positive comps in the fourth quarter. This strength was driven by brands like Flex, tech gear, jumping beans, and apartment nine. Our home business underperformed largely due to softness and seasonal decor, particularly within our proprietary brands. We bought too deep, which limited customer choice for the various holiday celebrations. We also have an opportunity to be more competitive by offering better value through sharper price points and key seasonal items. Moving to the remaining lines of business, the accessories business continues to outperform. Our Sephora business grew 2% with comparable sales improving to flat in Q4. This was driven by our expanded holiday gifting sets and continued strength in our fragrance and hair care categories led by brands such as YSL, Valentino, and Keali. Excluding Sephora, our accessories business increased low single digits led by the expansion of impulse to nearly all doors in Q3, helping deliver over a 40% comparable sales increase versus last year. We also saw positive performance in our jewelry business with strength in our fashion and bridge jewelry. Our footwear business underperformed the company due to softness in active footwear and boots. We expected our boots business to remain soft in the fourth quarter and proactively reduced our buys based on pricing expectations. The strength in dress and casual footwear across men's and women's businesses partially offset this category softness. Beyond our category performance, it is also important to acknowledge that the consumer is behaving differently in this challenging macroeconomic environment. We know our core low to middle income customers continue to face financial pressure and they are seeking value. As we expect this customer behavior to persist, we are adapting our strategies to ensure we are delivering great value to better serve this customer. We have taken immediate action to address the opportunities and to build upon our strengths. As we move into 2026, we will continue to work on our key initiatives. This work is essential for setting up coals for long-term success and will take time. In 2026, we are committed to continuing the progress we laid out in 2025 and have clear, actionable insights that we can build on. Starting with our first initiative, offering a curated and more balanced assortment that fulfills the needs across all our customers. As we work through our merchandise strategies, our goal is to invest in key styles and categories while reducing redundancy to ensure we have a purpose behind each product and brand. By exiting out of unproductive styles and offerings, we can reinvest into higher turning items to drive a more balanced assortment. In our apparel businesses, we're focused on increasing our investment into our basics while also right-sizing our assortment offering and trending categories. By strengthening our core apparel business category, We ensure that our customers can consistently rely on us for the essential high quality items they need for daily life. In addition to our core business, we continue to find ways to curate our assortment into more fashion and relevant categories such as denim, dress, and active wear. In our women's business, we are broadening our denim assortment with more styles and fit through our key national partners such as Levi's, and enhancing proprietary brands such as LC Lauren Conrad and Sonoma. Additionally, we will build on the momentum in juniors by introducing the Office Edit by Sew to provide a new compelling assortment in the casual and dress categories. For our men's business, we are investing into key item programs within proprietary brands such as Tech Gear and Sonoma. And we will expand upon successful brands like Flex with our new offerings of Flex Golf, Premium Pant, and Fleece. We also have an additional opportunity to grow our dress category with an exclusive Hager Hall of Fame launch. In our kids' business, we will differentiate with our proprietary brands by introducing merchandising statements that show an expanded assortment of under $10 entry price points in So and Sonoma. We will also expand key brands like Jumping Beans into baby and flex kids to all stores by Q2. Last, we recently launched our new proprietary tween brand, Sea and Sky, in Q1. We're driving the next phase of growth in our Sephora at Kohl's business by strategically curating an exciting assortment. We successfully launched MAC, a leading makeup brand, in over 850 of our Sephora at Kohl's stores this month. This launch immediately delivers enhanced newness and a strong value proposition to our customers. Recognizing that newness is vital in the beauty industry, we are also preparing to expand assortment with proven brands like Tarte and Charlotte Tilbury. Additionally, We see further opportunity in 2026 to build on the successful launch of our impulse initiative. Following the rollout of an impulse queue line in nearly all of our stores, we have identified more ways to inspire our customers and drive highly incremental impulsive shopping behaviors. To capitalize on this, we are implementing the deal bar and impulse toy tower, both of which are specifically designed to offer compelling value on items like seasonal home decor and trending toys with all products priced under $10. We're excited to roll out these offerings this spring to maximize key seasonal moments, including Valentine's Day, Easter, and Mother's Day. In footwear, as we transition to spring, we expect our dress, casual, and active categories to gain momentum. We're focused on improving our inventory position and reducing overall choice to deliver better clarity on the sales floor, while ensuring greater depth in key styles our customers are seeking. And lastly, in our home category, we will deliver more value through our investment into key proprietary brands such as Big One, while simultaneously growing newly launched brands such as Mariana, Hotelier, and Mingle & Co., In addition, we will leverage key national brand partners who continue to deliver newness and innovation, including brands like Shark and Ninja. And finally, we're taking immediate action to recapture our seasonal decor business through offering greater customer choice and sharper price points on key items. Our second initiative is our focus on reestablishing Kohl's as a leader in value and quality. Value continues to be a focus and is especially important given the macro economic uncertainty. The majority of our customers are low to middle income. These consumers have been consistently under pressure and are being thoughtful with how they are spending their discretionary income. It's clear that when we offer value, it resonates with this customer. Kohl's has an opportunity to deliver more consistent competitive value to all of our customers. In 2025, we took important initial steps to enhance our promotional strategies and increase brand eligibility in our coupons. These actions proved to be a critical first step, resulting in an improved trend, particularly among our Kohl's card and loyalty customers. In 2026, our focus remains on building upon the momentum we've established and deepening our commitment to delivering undeniable value to every customer. We are executing a strategy that includes simplifying our promotional statements and deploying more personalized real-time offers. This allows us to be more targeted, rewarding our most loyal and deal-savvy customers while ensuring a compelling value message breaks through to a broader customer base. We're also making meaningful investments to amplify our proprietary opening price point brands, which provide exceptional quality at an accessible price. These strategic adjustments will strengthen our competitive position and ensure we deliver incredible value to all customers. A key element of Kohl's value proposition is the power of our high quality proprietary brands. This year, we are committed to increasing our investment into proprietary brands inventory marketing, and experience. In the women's business, we are excited about the work we are doing to amplify key proprietary brands, LC, Lauren Conrad, and TechGear. In stores, we are elevating the experience to improve findability and inspire our customers. To achieve this, we are adding improved signage for better wayfinding, highlighting key styles with mannequins, and adding find your fit communication to better help customers find the product, and fit they desire. This experience will be completed with our LC Lauren Conrad brand in Q1, and we will complete the Tech Gear experience in Q2. We are also excited to build off the momentum of another strong proprietary brand in Flex. Last fall, we introduced Flex to our kids category in 300 stores. Currently, we've expanded this to 600 stores in Q1, and are expecting to be rolled out in all stores by Q2. In addition to the investment we are making into our proprietary brand's inventory and experience, we will be supporting them with a new marketing campaign celebrating our Buy Kohl's brands. The Buy Kohl's campaign will put a spotlight on the great brands that customers can find only at Kohl's. We will focus on several by Kohl's brands by highlighting style, quality, fit, and aesthetic. To accomplish this, we will be leveraging our Kohl's Mom this spring, utilizing a strong cross-channel campaign, including fun social content, TV, and digital video. We're also creating a landing page on our website and app to better highlight the proprietary brands to our customers. And lastly, our third initiative is delivering a frictionless experience across our omnichannel platforms. A frictionless experience starts with reestablishing trip assurance for our customers. To address this, we are making deliberate changes to both our planning and supply chain processes. Specifically, we are committed to investing in depth with plans to increase it in the high single digits while simultaneously curating our choice counts for greater clarity and relevancy. This strategy includes protecting our replenishment receipts and heightening our in-stock levels, all while improving inventory turn to ensure the freshness of receipts. These adjustments are designed to ensure that the right product with sufficient depth is available at the optimal time across all our stores. Encouragingly, we are already yielding positive results from the implementation of some of these disciplines. We successfully executed a substantially smoother transition of our spring receipts heading into 2026, and our spring seasonal categories have started strong. To complement our investments in clarity and depth, we are focused on delivering a more consistent shopping experience through improved inventory allocation, which directly strengthens our omnichannel performance. By increasing inventory depth and improving in-stock levels, We are better positioned to leverage our store-enabled fulfillment tools, such as BOPUS and BOSS. These omnichannel options provide our customers with greater speed and convenience while allowing us to utilize our ship-from-store capabilities more efficiently. We will continue to refine these tools to ensure a frictionless and reliable experience across all touchpoints, regardless of how or where our customers choose to shop. In addition to stores, we have an opportunity to modernize our capabilities and enhance our digital experience. We're focused on delivering a better experience and deeper connections through advanced personalization and contextual relevance, making every interaction with Kohl's more meaningful for the customer. We are enhancing our omnichannel capabilities across all digital touchpoints such as search, findability, and availability, as well as elevating our store-enabled services as key differentiators to maximize convenience and create the seamless, integrated shopping experience. And last, we are actively modernizing our site structure and foundational data architecture. This ensures our digital ecosystem is discoverable, high-performing, and fully prepared for a future driven by AI and ancient technology. Now, before I hand the call over to Jill, I would like to reinforce my perspective on the year. We've made meaningful progress in strengthening our foundation, and I'm confident that we are on the right path. While our fourth quarter results presented clear opportunities, we have already taken immediate action and are poised to build upon the strengths we have established. We're leaving 2025 in a measurably stronger position than when we entered it and we are unwavering in our commitment to driving continued progressive improvements throughout 2026. I will now turn the call over to Jill.