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 So if you are listening to a replay, it is possible that the information discussed is no longer current and COLE assumes no obligation to update such information.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.

Thank you, Michael. For today's call, I will provide additional details on our fourth quarter results and outline our fiscal year 2026 guidance. Net sales declined 3.9% in the quarter and 4% for the year. Comparable sales declined 2.8% in Q4 and declined 3.1% for the year. The decline was primarily driven by a decrease of transactions, specifically in stores. Store sales declined mid-single digits for both quarter and the full year, primarily due to a decline in transactions. Additionally, as Michael noted, our stores experienced a negative impact in January due to unforeseen weather conditions. Digital sales grew low single digits in the fourth quarter and were flat for the year. This performance was primarily driven by higher traffic offset by lower conversion. We are pleased to have established a critical point of stability ending the year flat. However, our goal was to drive a more substantial growth in Q4 following the headwinds of the previous year. Our digital business has a higher penetration of our close charge customer, and although we are seeing improvement in this customer performance, it is still down mid-single digits, pressuring our digital business. In addition, we need to further elevate conversion through better inventory availability and findability, which are being addressed through the inventory strategies Michael outlined. Moving down the P&L, other revenue, which consists primarily of our credit business, declined 9% to last year in Q4, an improvement from the third quarter driven by better cold card performance. For the full year, other revenue declined 10%. As a reminder, at the beginning of the year, we shifted certain credit-related expenses from SG&A against our other revenue line. For the upcoming year, we will lapse this adjustment so our other revenue should normalize and reflect the relative performance of our cold-charge customers. Growth margin in Q4 expanded by 25 basis points to 33.1% of sales. This expansion was driven by continued strong inventory management, resulting in lower clearance markdowns. This is partially offset by increased cost of shipping as our digital penetration increased 220 basis points to 35% of total sales for the quarter. For the full year, our growth margin expanded by 34 basis points to 37.5% of sales. SG&A expenses decreased $76 million or 4.9% in Q4. Excluding the shift of credit-related expenses, SG&A declined 4.1%. The decrease in SG&A was driven by lower store, marketing, and fulfillment related expenses. For the year, SG&A expenses decreased 4.1%, and excluding the shift of credit related expenses, SG&A declined 2.8%. Depreciation expense was $174 million in Q4, a decrease of $9 million. For the year, depreciation declined $43 million to $700 million. The decline was mainly driven by closures of stores and one of our e-commerce fulfillment centers last year. Interest expense was $59 million in the fourth quarter and $288 million for 2025. This was a reduction of $15 million for the quarter and $31 million for the full year. The decrease was a result of the execution of an open market debt repurchases at a discount of $11 million in the fourth quarter and lower utilization of the revolver throughout the year. Our tax rate was 18% in Q4, and an adjusted tax rate of 16% for the full year. Adjusted net income in the fourth quarter was $125 million, resulting in adjusted diluted earnings per share of $1.07. Adjusted net income for 2025 was $186 million, or adjusted diluted earnings per share of $1.62. Moving on to the balance sheet and cash flow. We ended the year with $674 million of cash and cash equivalents, an increase of $540 million from 2024. Inventory decreased approximately 7% compared to last year. Our disciplined inventory management has enabled the more timely flow of transitional receipts, positioning us with stronger, fresher spring inventory as we enter 2026. Operating cash flow was $750 million in Q4, and $1.4 billion for the full year, a $700 million increase from 2024. Our capital expenditures were $64 million in Q4 and $372 million for the year. In addition, we achieved our goal of fully exiting the revolver with no borrowings at the end of the year, and we further deleveraged our balance sheet by buying back $87 million of long-term debt at a discount to par value during the quarter. In 2025, we returned $56 million of shareholders through our quarterly dividends. As previously disclosed, the Board on February 25th declared a quarterly cash dividend of 12.5 cents per share payable to shareholders on April 1st. Now let me provide details on our outlook for 2026. We believe the actions we are taking, as well as the strategic initiative laid out by Michael, will allow us to continue making progressive improvements for the business in 2026. Our outlook reflects our confidence and our ability to execute against these initiatives with great discipline, while considering the uncertain macroeconomic environment we continue to operate in. We remain cautious as our core, low- to middle-income customers remain choiceful with their discretionary spending. Our outlook for 2026 is as follows. For the full year, we currently expect net sales and comparable sales to be in the range of a 2% decrease to flat versus 2025. Operating margins to be in the range of a 2.8% to 3.4%. And earnings per share to be in the range of $1 per share to $1.60 per share. Now let me share some additional guidance details. We expect other revenue to be down 4% to 6%. The decrease is due to lower accounts receivable balances driven by sales underperformance in 2025 by our credit customer. Growth margins to be flat to down slightly driven by increased proprietary brand sales, offset by increase in digital sales, and elevated promotional offers as we drive more value for our customers. S&A dollars to be in the range of down 0.5% to down 1.5%. These savings will be driven by lower store payroll, marketing, and supply chain costs. Depreciation and amortization of $700 million interest expense of $285 million, and a tax rate of 22%. We will continue to manage inventory tightly and expect inventory to be down low to mid-single digits and capital expenditures to be in the range of $350 million to $400 million. As we anticipate the new initiatives to take time to have an impact, we expect sales to build throughout the year. And although we are pleased with our start to Q1, specifically in our spring season and year-round businesses, there's a lot of quarters still ahead of us. We expect Q1 comparable sales to be down low single digits with the remaining metrics balanced by quarter. With that, Michael and I are happy to take your questions at this time.

As a reminder, to ask a question, please press star followed by the number one on your telephone keypad. Our first question comes from Chuck Grom from Gordon Haskett. Please go ahead. Your line is open.

Thanks very much. Can you just talk about the Buy Kohl's campaign that you're going to launch this spring, what it's going to involve? And then laterally, what's your expectations for comps in 2026 amongst your Kohl's cardholder, given the recent improvement that you saw in the back half of 2025?

And maybe I'll take the first half of the question. Chuck and Jill can handle the second part. As far as the Buy Kohl's campaign, we've actually launched that already. And it's a continuation of our effort to make sure that the power of our proprietary brand portfolio is showcased and emphasized. So there's a marketing element to it that brings some of our most important proprietary brands together like Flex and others. But it's also an opportunity for us to continue down the path as we've been talking to you over the last three to four quarters about the importance of the proprietary brand portfolio to our customers in general, but in particular to those that are Kohl's card carrying members. It's a mouthful, sorry. And so it's an important first step for us to be able to, or next step for us to be able to showcase those brands in a way that elevates them, allows us to tell stories in an inclusive manner across both of our platforms of stores, as well as digital.

And in terms of the cold charge holder, you know, obviously it's continued to lag our performance this year, but showed steps improvement from down mid-teens to down mid-single digits at the end of the year. I'd expect this to continue to improve based on a lot of the efforts that we're putting forth. First, they do over-penetrate in proprietary brands. So as we're making that investment back into those brands, it has resonated with that customer, one, because it provides incredible value. It's opening price point. We also need to restore the trip assurance with this customer. So investing back into depth will help with that as well. So when they come in, they can find what they're looking for. A couple other key things that we've done is the coupon eligibility resonated with this customer, as well as as we've bought back into jewelry and petite. So I think you're going to see a build in this customer. It will probably still lag in the front half of the year. I think it will catch up in the back half of the year. The good news is our non-cold charge customer has been running positive and And we continue to see new customer acquisition up as well. So those are definitely driving our business. We just need to get this customer back into parity with our comps. And I think that'll happen more in the back half of the year as some of these new initiatives start resonating more with that customer.

Okay, great. And then just on the credit revenue line, you're batting down four to six. Is there any geographical shift across the P&L that's happening? Just maybe explain why you expect it to be down and then just, you know, bigger picture. Is there a way to size up, how much of an impact the shift away from your proprietary brands over the past handful of years has actually had on your credit business, given that I believe that the cardholders likely over-index to own brands versus national. Just trying to understand the implications from credit because of the shift away from mix in recent years. And I guess the opportunity that that indirectly presents.

Yeah, I would say it's going to lag, so that's why we're down and lagging from a sales perspective. We're coming into the year with less accounts receivable, which is what really generates that interest revenue and the late fee revenue for us. So it's always going to lag. Make your purchase in month one. We don't start billing you until 30 days later. You don't start getting accrued into interest for 30 days, and then it really builds and accumulates. So it's always going to lag top line just given the lag of those purchases. I would agree. As we move into proprietary brands, they definitely over-penetrate into that category. We were really void of an opening price point in our store over the last couple years because we hadn't invested into proprietary brands, and this customer is finding that value elsewhere. The good news is she continued to shop us. We just got less frequency from this customer. So as we've brought back coupons, as we've brought back proprietary brands, we're starting to see that reaction to our customer, which is really what is driving that 120 basis point improvement in that comp from Q3 to Q4, and really moving from down mid-teens to down mid-single digits by the end of the year. So big improvement. We continue to expect to see improvement, but it will lag on that credit revenue line just because of how the interest and late fees accrue to the balances.

Got it. Thanks a lot. Thanks, Chuck.

Our next question comes from Mark Altschweiger from Baird. Please go ahead. Your line is open.

Thank you. Good morning. Michael, you outlined several initiatives today. Which of these do you view as the most immediate catalyst for recapturing market share in 2026? Furthermore, how should we think about the scaling here where these assortment pivots and other initiatives provide enough lift to drive a return to comp growth?

Yeah, thanks for the question, Mark, I would say, just carrying on on Jill's commentary around proprietary brands, that's been a significant focus for us in the past, call it eight to nine months or so in terms of restoring what we believe to be the proper balance. And again, we're not targeting a specific number that we're looking for, from a mixed perspective, but proprietary brands, for a number of different reasons, are really a focus for us and bringing and restoring the activity that we need with our customer. Jill mentioned the importance of the Kohl's credit card carrying customer. They index heavily toward proprietary brands, so that'll be a big focus for us. I think also beyond that, making sure that the continuation of the brands that we will be pushing forward, both national as well as proprietary, will be a big part of that. Um, our focus right now also is on making sure that we provide, um, I'll say maximum value to our customers. Um, and so you're seeing us, um, offer, um, more in the way of, uh, call it $10 and under items. So, um, look at toys as an example. Uh, we have a toy tower, um, that we're rolling out to stores, uh, that has price points, uh, 4 99, 7 99, 9 99. um and then the deal bar which we've recently rolled out as well which if you walk into the entry of our store provides another impulse opportunity and a pickup for customers beyond what you can see as you're checking out in our queue line so those those are just a couple of examples of where we're focused right now and um and more more to come thank you and jill the follow-up on the ebit margin guidance um calling for

about 50 basis points of compression at the low end. What specific headwinds are captured in that lower end, that 2.8% floor? What are you incorporating in terms of changes to tariff rates, if any, and just any further color you can provide on the expected cadence for the year on EBIT margin would be helpful. Thank you.

Yeah, I think the biggest thing from an EBIT is on the down too. It's just harder to leverage our SG&A costs just given the fixed cost nature of our business. So I think we've done a really incredibly good job of bringing down our expenses over the last couple of years. We'll continue to operate with that discipline into 2026 as well. But I think it just puts pressure on the EBIT expansion. Obviously at flat, we're expanding the margin. So I think that shows our discipline in terms of how we're managing expenses, that we are able to have some expansion on the top end of the guidance. From a margin perspective, I think we've managed our tariffs incredibly well. We've actually offset that. So I do want to give a shout out to our sourcing and buying teams and how they've managed this dynamic environment in terms of still being able to expand our margin this year by over 30 basis points and 25 basis points in the fourth quarter. Next year, really, we're going to manage it the same way. So we think we have the right mitigation tactics to manage through tariffs. The big thing that we want to make sure that we're going after is value. We know we serve the middle to lower income customer. We know they have to be choiceful with their discretionary spend. And so a lot of what we're talking about today is how we can stand for value, whether that be through our proprietary brand portfolio, through the price points that Michael indicated with the $10 and under, but also making sure that we're going to be able to break through with our promotional values as well. So we want to give ourselves some room to be able to do that. We know our proprietary brand will be a tailwind in the mix as we definitely move more into sales there. But we also see digital as a growth opportunity. We were happy to get to a point of stability and putting a flat comp for the year. But we really think this can be a growth engine for us as well into 2026, which will then add some pressure to margin. So those are kind of some puts and takes. So margin, I would say, isn't going to be a driver of the EBIT expansion, but rather it's going to be around our expense management. And then obviously getting to that flat comp allows you to expand it on the top end.

Thank you.

Our next question comes from Bob Durable from BTIG. Please go ahead. Your line is open.

Hi. Good morning. Just a couple of questions from me. On the women's business, you know, as you think about this year and I think the progress that you made last year, where are the biggest opportunities ahead? And I guess on the same line of questioning would be just in home, I think when you think about what you've learned sort of Q4, in-home, you know, soft home tabletop. Can you just talk through that category as well? And just curious on sort of online versus in-store, you know, how you would merchandise, you know, that category. Thanks.

You can take a shot at that first.

So from a women's perspective, I would say one big college is Junior's Bob. It was up 8%, really seeing momentum behind our sole proprietary brand. which as you know, Junior's fastest turning business, we're probably the most mature in that curve in terms of how we went after our proprietary brand portfolio. So I think that's kind of the litmus test for us and really what we're gonna continue to chase after. And that's where women's will continue to lead to. I think there's a couple of opportunities If I think about women, we're in a denim cycle, so you're going to see us leaning into our proprietary brands with Elsie, Lauren, Conrad, and Sonoma, but also great national brand partners like Levi's. So that's going to be coming to life in our store as well. We know we had a little bit too many choices on our floor, so they're really going to be curating that assortment and putting more depth in so we can be in stock on those basics that we need. We went a little too far I think this year into core knits and sweaters, so we know we have an opportunity to curate that better as we get to the back half of the year. I'm really excited about our spring seasonal selling. A lot of the changes that we learned from our missteps in fall seasonal, we've corrected and we're starting to see that momentum as we called out with our spring seasonal businesses, which will only grow in volume as we move into March and April. So we're excited about that opportunity in front of us. So I think that women's really has the right formula from a junior's perspective, and they're going to continue to follow that as we move into the new year. From a home perspective, I think What we learned there was on seasonal decor, people like more choices. And so we went a little too deep in some categories, and we needed to give more choices from that perspective. So they have already corrected from that. We'll move into it. So we know as we go into next year, don't go too deep on the Santa Claus and snowmen, but have a little bit more array from a choice perspective and then having sharp price points. And so as we think about where we can add more value, particularly as we get into that seasonal business, that's where we'll go. So we have a couple of places along the way. We did some small testing in Valentine's Day. You'll see Mother's Day, Father's Day. So we have some moments to make sure we get it right before the big holiday season. But we feel good with the progress that that team has made and the steps they've already taken to correct what we saw during the holiday season.

I guess, and if I could just ask a follow up, which would be on the marketing expense, you know, when you think about sort of how you're approaching, you know, reengaging with some of your credit customers, but also non credit customers, you know, where did you end up in marketing? And you just talked through the plans for 26 in terms of, you know, leverage, not leverage in terms of how much you're going to spend. Thanks.

I think marketing this year, we ended up close to a similar A to S as last year. Kind of that's my metric for how I look at the productivity. What I would say is we always look at opportunities. That team has done an amazing job of finding productivity and making our working media work harder for us. So it has been a way for us to save some money. However, we spend a lot of time with our chief marketing officer about where and how we can invest back into drive sales. So if we see opportunities, we're definitely making those investments and making sure we get the return back off of the money. So even though there's some savings, I think if you look at that productivity factor, you'll see it's pretty in line with where we've been. And it is a place that if you look at versus where we've planned to be, we will tend to invest back into because we know we can get the sales, particularly in digital. It's a very easy way for us to invest in. get some search terms, get some paid traffic in moving our digital business forward and getting a really good ROI out of it. So I think we have a very good system in terms of how we measure marketing and then how we make those investments to make sure we're getting the return back from an organization perspective.

Great. Thank you very much.

Our next question comes from Dana Telsey from Telsey Group. Please go ahead. Your line is open.

Hi. Good morning, everyone. I know you have a very healthy store base in relation to profitability. How are you thinking of openings and closings this year and the small store boxes? What's the game plan and remodels? And then on, Michael, as you talked about the initiatives for top line growth, how do you see the framework of the store changing either by category, obviously at the impulse lanes, and what does footwear and active mean for you this year? Thank you.

Good. So I'll try to take some of those questions. Thanks, Dana. The question around stores, and we've talked about this before. I think we have a store base of 1,150 stores, roughly, that vast majority are well over 90% are profitable. As we look at that store base on an annual basis, we'll continue from a hygiene perspective to make sure that we believe that those stores are positioned in the right spot and delivering what we need. So I would not anticipate any sort of grand plan of saying stores, we're taking stores out or adding stores at this point. The focus for us is actually on optimizing what we already have, and we'll be focused on making sure that we continue to push the store's productivity as far as we can going forward. We will look at stores like we do on an annual basis, like I said, and to the extent that there are opportunities for us to either relocate, those are opportunities for us, we can do that. But no major change in the store base expectation at this point. And then as far as footwear, do you want to cover?

I think on footwear, we need, I guess, if footwear is doing well from a dress casual perspective and we're seeing some green shoots there, particularly like in sandals, we knew boots was going to be tough. We bought that down just given the exposure to tariffs in that category. So that was an anticipated piece. I think the big piece of it for us, as you mentioned, from an active perspective is getting innovation and some movement from an innovation perspective in the footwear business. We've been working really closely with our top three partners. I think we do expect to see some momentum build in that category throughout the year, but I would say we'd probably be set better from that perspective for back to school into fall just because of the change that it does take to get there. So I would say from a footwear perspective, I expect it to probably lag the front half of the year, but by the back half of the year, get back into parity from a comp perspective, just given we do have a big active footwear business. And that will take some time to bring that innovation through from that perspective. And then in terms of, I think, your last question, if I wrote it down correctly, was the top line framework for store changes. I think, you know, we've made some big changes in the last couple of years. Obviously, Sephora coming in was a big moment for us. We had some missteps with the jewelry. So bringing jewelry back in, showing that and showcasing that, having accessories have a home behind the Sephora pad. And moving juniors back to the front of the store were some big showcases that we had in 2025. Clearly, putting juniors in the front was working. That cross-shop ability with Sephora had persisted and consisted for us, which is a good thing. Impulse lines and queuing lines have come in. We now have that in all stores, which we finalized at the end of the year. So that was a white space opportunity for us. And you're now going to see gifting zones as well, and those are going to be with the $10 price points. You're going to have more table towers, whether that be impulse gift deals, and also in toys. And then we did some in-store showcases of our proprietary brands. So you'll see, if you come in, we are showing more around Lauren Conrad. So you're going to have elevated signing mannequins, really a much more curated assortment that should be in stores now. And then tech gear will be the secondary brand that we're going to be supporting as well to showcase it. So we're investing in the proprietary inventory. We're investing in the marketing to build awareness, and we're investing in the in-store experience as well as you're going to see it on our digital experience as well for the customers to showcase those brands. So really putting our effort behind growing back those proprietary brands, which as we know provide incredible value but also resonate with that core loyal customer for ours as well.

And, Dana, just to add on to what Jill was saying, what you're hearing her talk about is, trying to bring some fun and excitement back to particularly the store environment. So we've talked to you before about the storytelling nature of retail and what's important in being able to not only curate the right assortment, which is what our customers are asking for, but also do some storytelling. So whether it's the use of mannequins, the way we position an LC by Lauren Conrad brand, like Jill just mentioned in our stores, Those are all important aspects of us being able to actually bring some fun back to the Kohl's environment and make sure that what we're offering is not just an item at a price, but also a story around it so that whether it's the entire outfit that we can display and talk to from a mannequin standpoint, those are the kind of things that are important for us that we think will help enhance the experience in store for our customers as they engage with us. And then similarly online as well, telling that same story so there's a pull through of that thread all the way through the experience that a customer can have whether they want to engage with us online or in store or all the different versions in between like BOPIS and the rest.

Thank you.

You're welcome.

Our next question comes from Oliver Chen from TD Cowan. Please go ahead. Your line is open.

Hi, Michael and Jill. regarding trip assurance what's the timing of that happening and there's some things you can do sooner you've been doing then make it happen but how does it phase in quarterly and as we also model other income what should we know about the comparisons and drivers throughout the year as the profitability your company is quite sensitive to that line it sounds like a lot's under your control but what could be risk factors to the upside and downside on other income for us to consider And third, you've been on an inventory management journey for many, many years. I think it's different now, but what's different in terms of breadth versus depth? It sounds like there's some decisions that were made that were self-issues in terms of what you're choosing to do with basics and others. Thank you.

Yeah, so on the trip assurance question, what I would tell you is that that work is well underway, and we've been focusing on that in large part of the 2025, and it'll continue into 26 as well. And the whole focus there is our customers count on us to actually have what they're looking for, whether it's online or in store, particularly in store. And what we've been doing is curating the assortment to the point where we have the appropriate level of choice. And in many cases, that means reducing the choice offerings that we have, but at the same time, actually going deeper on that so that particularly in the basics area and that that work will continue. Our teams collectively across the organization have been working diligently on that over the last several months and last number of months. And we feel like we're we're making good progress in that in that area. So you want to you want to talk about the income.

Sure. I think when you reference other income, you're referencing the other revenue, Oliver, but really it's going to be about our credit sales. And I think, you know, that's where it's going to ebb and flow. So as I mentioned, it comes out of this year, we have a lower accounts receivable balance just because it's been lagging. We need to build that back. So the guide of down four to down six will lag the comp just because of the ways that that build happens, the way that it revolves and it generates that revenue. So I would say, you know, we're staying down flat down to, we know our credit card customer needs to continue to improve. I think, you know, we can see that improvement more in the back half of the year, but it will still cause a lag on the other revenue line. So I think if you kind of look at that spread that we gave you, it's probably a good spread to use as we move in to the current year. There are no reclassifications, so it's very pure this year. So it should be an easier way for you to be able to model that.

C4 has been a great new customer recruitment tool. What's your latest thinking on the best adjacencies next to that, and where are we given that there's lots of nice conversion opportunities? And lastly, Michael, this is simple but hard, but what do you think it takes to positive comp in stores? There are a lot of great things happening, but what's your visibility or your thoughts on which ones will be the critical drivers just to get back to positive comps on multiple years of negative comps? Thank you.

Sure. On the, uh, on the Sephora question, um, you know, we feel very good about the, um, the partnership there, um, in terms of the adjacencies, you know, we have moved juniors across from Sephora. So, uh, we feel like that, um, that was the positive move and is paying dividends for us in terms of a customer coming in, uh, for Sephora purchase and then turning out and seeing, uh, what's available. That's a younger. oftentimes more diverse, more digitally savvy customer that comes in to shop for Sephora. And we want to make sure that the products that they see outside of the Sephora portion of the store are consistent with what they're looking for. And that move with Juniors has been a big part of that. As far as getting back to growth, I'll write, you know, I don't want to pinpoint a date and a time to say it's going to happen. But the kinds of things that we're doing in terms of the progression that we've been on over the past year particular, but over the last couple of years, I would say, are, I think, indicative of the progress that we're making. We've mentioned proprietary brands. We've mentioned the culling of the curation of the assortment. Those are all things that we think are right. I talk to the team all the time here about, I use the analogy of a restaurant that, you know, we've got to get the product right. Because that's what people ultimately come for. Experience and all the other things that are wrapped around it are important as well, and we're working on those as well. But we've got to get the product right to make sure that that's what the customer continues to come back around. So we will continue to focus on building that space to get back to growth eventually. What I would tell you is that if you look at the progression that this organization has been on over the last call of a couple years, we had a negative six comp two years ago. We produced a minus three comp this past year in 2025. We're giving you guidance, as Jill mentioned in her commentary, of being flat to down two. We came out of the fourth quarter roughly around a two if you back out the weather impact of the 70 basis points that we mentioned. And so we're guiding on the low end of, of where we're already performing. And if you build these capabilities on top of that, that's what we believe will get us at least back to flat. And we have the ambition obviously to get back to growth eventually. And that's, that's what, uh, that's what the aim is. We understand that that's the lifeblood of any business to grow. Um, but we also want to be measured and disciplined in the way that we get there, particularly against the backdrop of the environment that we're operating in from an economic standpoint.

Thanks for those details. Appreciate it. Best regards.

Sure.

Thanks, Oliver. Our last question today comes from Michael Bonetti from Evercore. Please go ahead. The line is open.

Hey, guys. Thanks for all the detail here. Just on the comps, Jill, you suggested, you know, that we'd be building to the flat to down two through the year. Maybe just a thought on trying to connect that to your comment on the first quarter. Sounds like seasonal goods and some of the holiday decor was the headwind in fourth quarter, but the core was stronger if the spring seasonals are getting better and the core was stable. How should we think? I'm trying to think about trends in first quarter relative to the negative two to flat for the year. And then I'm also curious, it sounds like... It sounds like, you know, with the coupon and shifting to expanding the coupon a little bit deeper, as you said, and shifting to more of the entry-level price points to drive value sounds like a good idea, very important. Can you just talk about how you're thinking about the range of outcomes for units versus AUR that can support the negative two to flat comp for the year?

Sure. So I think from a comp perspective, Michael mentioned it well. We anchored the low end on our current performance. If you look at fall, we exited the year down to the flat shows that we're going to have progressive improvement throughout the year. So really by starting at the low singles that I guided for Q1, you'd actually say your exit rate has to get positive to exit at a flat. So we do know we have to make some changes. Obviously we had some missteps with fall seasonal. We made those corrections with spring. It started out great. It's a small portion of the business right now. So I think I don't want to become overly optimistic. That's, as you know, not my nature, but we feel good with that business. We feel good with our year-round business, which has actually continued to perform well even through the fourth quarter. So I think we're cautiously optimistic there, but there's a lot of macro headwinds, and we know our consumer is low to middle income. They're under a lot of pressure. Obviously, a lot of things happening today that is taking their discretionary income. So we also want to be mindful of the environment that we're operating in. So we're kind of balancing that as we enter into this year. We also know a lot of these investments into depth are going to happen as the year progresses. We mentioned footwear. We know we have some new innovation coming, but we don't expect that till the back half of the year. So there are things that are happening, but it does take some time to make those moves. So We wanted to make sure we gave ourselves that room within the guide to be able to make those changes. And as we continue to show progressive improvement throughout the year, that will show that these efforts are working. But I think as Michael mentioned in his prepared remarks, it's not going to be a straight line. I mean, there are going to be some ups and downs, and it's not just within these four walls that we get to control what's happening. We do have to be mindful of the external environment, which brings us to why the coupon and the opening price point is so important. We know that our customer, particularly the low to middle income customer, is going to over-penetrate in these value brands. So we need to bring that to them. We've seen, you know, gosh, I think if I look back for the last 20 quarters, Michael, we typically have seen a pretty flat average transaction value. Our issue continues to be traffic. So whether we're bringing in higher price point or lower price point, they will fill that basket and our average transaction value typically has stayed relatively flat-ish. It really comes down to driving traffic, which you've heard a lot more about marketing in this call because we know we need to continue to drive that traffic both in stores and digitally. We've done an incredible job digitally. Our traffic was very solid in the fourth quarter. We need to continue to do that to the stores, and I think the investments we're making in that experience, like Michael outlined, is a way for us to bring in some more traffic, as well as just a better flow of goods. We transitioned in January this year, which is probably the first time we've done that in a long time. Bringing in newness, having those transitional goods, it gives that customer a better reason to shop. And just on that inventory management, it affords us more currency of inventory and pulling goods faster, which we also think could be a driver of trips. So I actually feel well positioned as we enter the year, but I would say that I'm also just cautious being mindful of the macro environment that we're operating in.

Okay. Thanks a lot for all the help, Jill.

Great. Thanks, Michael.

And we're out of time for questions. This will conclude today's conference call. Thank you for your participation. You may now disconnect.