Kohl's Corporation

Hello, everyone. Thank you for joining us and welcome to the Q1 2026 Kohl's Corporation Earnings Conference Call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, please press star one again. I will now hand the conference over to Trevor Novotny, Director of Investor Relations. Trevor, 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 COLE's 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 Kohl's 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 reconciliations 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 So if you are listening to a replay, it is possible that the information discussed is no longer current and Kohl's assumes no obligation to update such information. With me this morning are Michael Bender, our Chief Executive Officer, and Jill Timm, our Chief Financial Officer. I will now turn the call over to Michael.

Thank you, Trevor. Good morning, everyone. And thank you for joining us this morning to discuss our first quarter results. We are pleased with our start to 2026 as our comparable sales ran down 1.1% to last year, marking the best quarterly performance in over four years. In addition, we continue to manage the business tightly, resulting in strong expense discipline, inventory management, and an improved balance sheet. The progressive improvements from the prior quarter exemplify our ability to execute with agility and make necessary adjustments in our business. Moving forward, we remain realistic about the important work ahead of us, but the early results in Q1 give us increased confidence in our ability to execute against our key initiatives. Since stepping into this role one year ago, we have focused our efforts around resetting our foundation In order to position Kohl's for long-term success, it's imperative that we get this work right. Each day is an opportunity to win our customers' trust and business, and we are working diligently to do so. We take accountability for our performance, knowing that success may not always be linear, and we will remain agile and make strategic adjustments based on the evolving trends in our business and customer behaviors. As you saw from our release this morning, we did exactly that and are back to delivering progressive improvements in our business. Now, looking deeper at our Q1 results, we saw a meaningful improvement in our loyal Kohl's card customer. This important customer base stabilized their performance and ran a flat comp in the quarter. This represents a significant improvement from the fourth quarter, where we ran down mid-single digits. A lot of the efforts we have taken over the past year have been tailored around reengaging this core customer, who has proven to be an extremely productive and loyal customer. Proprietary brands were another bright spot in the quarter, running up 6% on a comparable sales basis. This performance reflects the strength of our Buy Kohl's brands, which offer quality products at an affordable opening price point and which can only be found at Kohl's. Additionally, last quarter, we identified a few operational opportunities within our seasonal businesses, particularly around fall seasonal inventory planning and allocations. After identifying these opportunities, we took immediate action and implemented strategic adjustments to our buying and supply chain processes for our spring seasonal assortment. In Q1, we saw a notable benefit following these adjustments as our spring seasonal business was up mid-teens versus prior year. While trends are encouraging, we're not satisfied with where we are. We need to continue to show up for our customers every day as they continue to put an importance on value and remain under financial pressure. Next, I want to provide an update on the progress we're making against our key initiatives. These initiatives are specifically designed around our customers and are focused on delivering great products at an exceptional value with a frictionless and inspiring experience. Let me begin with our first initiative, delivering a more curated balanced assortment. At the onset of this work, our product offering had become overly saturated in certain products and categories, leading to unintentional lost sales with our core loyalist customers. We immediately began making improvements to our assortment offerings by reducing our redundancy and choice counts from market brands and reintroducing products in lost categories, such as petites and fine jewelry. Since then, we have continued to curate our assortment to further address needs across all our customers. The edits are aimed to drive a more consistent shopping experience with improved product clarity, purpose, and relevance. In some categories, this work is well underway and we're already yielding positive results. This gives us strong conviction as we continue this work into our remaining lines of business with their incremental benefits to come as we progress through the year. Let me start with the categories that are further along in their initiative work. In the first quarter, we had four lines of business that delivered flat to slightly positive comps, including women's, kids, accessories, and home. A category that has always been important to Kohl's is our women's business. We've implemented a lot of changes to this category over the years and are excited about the momentum we're creating here. This category over penetrates into our proprietary brand offering, which delivered a strong performance in the quarter. This momentum continues to be driven by our juniors business, up 10% in Q1. This strength is led by performance in our proprietary brand, So, which is quickly becoming one of the largest brands in our women's department. As we look ahead, we will continue to lean in to the success with our So brand by expanding the assortment into dress and casual categories with our office edit collection. Building on the success of proprietary brands in our juniors business, we've implemented similar strategies to the rest of the women's category. This led to strong Q1 performance in women's sportswear, driven by key proprietary brands like LC Lauren Conrad and Sonoma. Going forward, we will curate our assortment to maximize the potential of these brands, focusing on trending categories such as denim to provide relevant, affordably priced styles. Moving to our kids category, which historically is a resilient category as parents often tend to spend on their kids even when their wallets are stretched. Given this, we sought to find ways to elevate our proprietary brand offering in kids apparel. A few actions we have recently taken include rolling out our Flex brand to kids in all doors by June, introducing a new tween brand, Sea and Sky, which is currently exceeding our expectations, and expanding our assortment of the opening price point Jumping Beans brand into our baby and infant category. Outside of apparel, we are also enhancing our offerings within our toy and baby gear businesses. In toys, we will be launching an offering of K-pop demon hunters and amplifying our offering of Lego novelty sets. For our baby gear business, we're expanding our Baby's R Us gifting zones with additional fixtures of high velocity gifting and accessory items, as well as rolling out an additional 56 new Baby's R Us shop and shops this fall. Additionally, we are excited about the opportunity we have to grow our team business with an offering of team apparel and accessories in-store and online. Looking ahead, we're implementing a value-driven family fan zone to create a one-stop destination beginning with the World Cup in Q2. Accessories also delivered a flat comp in the quarter. We continue to benefit from the rollout of our impulse queuing lines running up over 50% in the quarter. The impulse product offering includes lower price point products that are often basket builders and provides an opportunity to introduce newness to our customers. Our total jewelry business, driven by fashion and bridge jewelry, remains strong. Following a successful 200-store test, we're expanding our fine jewelry offering to an additional 350 doors, viewing this as a significant white space opportunity. Complementing this fine jewelry expansion, we're also rolling out a new line of fashion and hair accessories under our proprietary SoBrand. These accessory fixtures will be placed in the junior's department to inspire customers to complete their looks with trending value priced accessories. Our Sephora at Kohl's business underperformed in the quarter, running down low single digits. Fragrance and haircare continue to be the strongest categories led by new brands such as Keali and Kerastase. Makeup and skincare underperformed in the quarter. Looking forward, our efforts are focused on driving traffic and conversion by maximizing key holiday moments, curating a portfolio of new and emerging brands and providing great value. We're leveraging the strength of our fragrance business for key gifting moments such as Mother's Day and Father's Day through existing brands and newness from Billie Eilish and Coach. In addition, we're expanding our makeup offering, having successfully launched MAC and March, which is resonating well with customers and is scheduled for a full store rollout later this year. In skincare, we're rolling out newness with trending Korean brands like Beauty of Joseon, Estora, and Biodance. Alongside these product introductions, we're making strategic investments in dedicated social media campaigns to support these efforts. The home category outperformed in the first quarter, improving over 400 basis points from our fourth quarter performance. Our customers continue to respond well to newness and innovation in this category from key brands like Shark and Ninja. On the soft home and tabletop side, we're leaning into proprietary brands like Mariana and Mingle & Co. Our home decor category showed a dramatic improvement from the fourth quarter, running up low single digits. This improvement comes following the adjustments we made within our seasonal decor businesses, where we had previously over-invested in depth and did not offer adequate choices to the customer. We're applying these valuable learnings as we move forward, optimizing our Americana business for the 250th anniversary, as well as our fall, harvest, and winter holiday decor collections. Now let me move to our men's and footwear businesses, which underperformed the company. We expect to show progressive improvements as our adjustments in these categories begin to take hold. We anticipate our men's business to begin showing improvements in the second quarter. Throughout this category, we've been making edits to improve our assortment clarity and reduce redundancy. Our proprietary brands will be our core business driver with complimentary key national brands to help offer a clear, good, better, best offering. This July, we're excited to announce the launch of Brixton, a modern lifestyle brand across 300 of our stores. Although the footwear business lagged in the first quarter, we expect this business to improve as we bring in newness and more depth for back to school. This includes newness in key active brands like Nike, highlighting their V5 runner and court vision low sneakers and Adidas. We're servicing our casual footwear with proprietary brands like Apartment 9 in men's and LC in women's. Now let me move to our second initiative, re-establishing Kohl's as a leader in value and quality. Value has always been a cornerstone of Kohl's foundation. And in today's macro economy, it's a necessity for the low to middle income groups that we serve. They continue to seek value in an attempt to stretch their dollars for themselves and their family when more of their money is being spent on essentials like food and gas. Last year, we began our work to deliver more consistent competitive value to our customers by increasing the number of brands eligible for coupon usage. We experienced an immediate and consistent increase in our penetration of sales included in coupon usage. We currently feel good with the edits we've made to our brand eligibility, but we will continue to closely monitor this going forward. The most impactful way we can improve our value offerings is through unlocking the power of our proprietary brands. Now, as I previously stated, our proprietary brands increased 6% on a comparable sales basis. Our customers love the quality and affordability of the proprietary brand products we're offering, and we will continue to increase our investment in proprietary brand inventory for the remainder of the year. To support the inventory, we're also enhancing our in-store experience and driving increased awareness through our Buy Kohl's marketing campaign. We began to roll out the in-store experience in Q1 with our LC, Lauren Conrad, and TechGear, both of which had strong performances in Q1. Following this success, we're continuing our efforts to enhance our in-store experience through key proprietary brands across our apparel categories. Our Buy Kohl's marketing campaign is off to a strong start, helping boost momentum for our proprietary brands. In Q1, we introduced Buy Kohl's to consumers and highlighted a few of our key private brands with video, social content, consumer press, and through partnerships with relevant influencers and celebrities. This campaign will continue amplifying the awareness of our buy Kohl's brands in the second quarter and heading into back to school. Outside of proprietary brands, we're finding additional ways to increase our value product offerings. A great example of this is within our impulse category, where we recently introduced the deal bar and toy towers in all of our stores. The deal bar highlights seasonal decor and gifting, all at price points under $10. Our toy towers include offerings of toys at $4.99, $7.99, and $9.99 price points with trending toys like the Nidoo Squishy, introductory Lego sets, and gaming cards. Both initiatives have exceeded our initial expectations as value continues to resonate with our customers. Moving to our third initiative, enhancing our omnichannel platform to create a frictionless shopping experience. In order to create a more cohesive and frictionless omnichannel experience, we need to improve the synergies within our store and digital businesses. A key component for enhancing our experience will be our inventory management. Specifically, we're working to improve our trip assurance to create a more reliable and consistent experience for our customers. Prep Assurance needs to be a key differentiator for us going forward. Simply put, the customer needs to be able to come to Kohl's, find what they're looking for in the size and color they want, and get it at an affordable price. To better achieve this, we're planning our apparel depth of high single digits and conversely planning our choice counts down high single digits. By enhancing our inventory composition, we'll be able to see benefits across both our stores and digital channels. This provides the customer more options for how they want to receive their product, in store, shipped to them, or through our buy online, pick up in store options. It also improves the speed to which the customer receives their products. Not only will this help create a better customer experience, it will also afford us the ability to increase our inventory turns and ensure freshness of seasonal receipts. Digitally, we're excited about the work we're doing to modernize and enhance our experience. Earlier this month, we launched a gift finder on our website that is powered by AI through Google Gemini. We're encouraged by the initial results and about the potential for these AI-enabled experiences. These enhanced shopping experiences will help improve product discovery and customer engagement with further opportunity to support conversion and reduce friction across the shopping journey over time. Beyond AI, we're also making progress across the core digital shopping experience. We're enhancing how customers discover and navigate our assortments through more curated digital experiences, improved storytelling, product spotlights, and brand level filters. At the same time, we're reducing friction at key moments of the journey, including clear delivery information and easier returns. Together, these improvements are intended to make Kohl's more relevant, easier to shop, and more connected across the customer journey. Another growth driver for our digital business will be our digital marketplace. This year we are planning to more than double our current offering of marketplace items on our website. While still early in its growth and maturity curve, our marketplace strategy has become a more meaningful part of the business. We believe this creates an opportunity to attract and convert more customers by expanding our assortment into white space categories that compliment our core offering. In closing, we're pleased with the results from our first quarter as our strategic initiatives are gaining traction. We remain intensely focused on execution and progressive improvements as we move through 2026. Before I hand the call over to Jill, I wanted to take a moment to express my sincere gratitude to our Kohl's associates. Our first quarter results are an exciting step in the right direction and could not have been done without all of the hard work from everyone here at Kohl's. Thank you for all you do every day to serve our millions of customers across the country. With that, I'll now hand the call over to Jill.