Kohl's (NYSE: KSS) raised its full-year adjusted earnings per share (EPS) guidance for FY26 to $1.80-$2.40, following second-quarter results that saw gross margins expand significantly despite a slight decline in net sales.

The retailer reported diluted EPS of $1.28 for the quarter ended August 1, 2026, compared to $1.35 in the prior year period. Net sales decreased 0.9% year-over-year to $3.3 billion, with comparable sales also down 0.9%. However, gross margin as a percentage of net sales rose by 305 basis points to 43.0%, driven in part by approximately $100 million in tariff refunds flowing through the line item.

Guidance Adjustment

The company’s updated financial trajectory reflects a more optimistic view of both top-line and bottom-line performance. By raising the floor of its EPS guidance by $0.80 from the previous $1.00-$1.60 range, Kohl's ensures that even its most conservative scenario exceeds analyst projections. The revised outlook now sits entirely above the consensus estimate of $1.43.

Simultaneously, Kohl's raised its sales guidance floor to $15.294 billion, maintaining the upper bound at $15.527 billion. This range exceeds the $14.891 billion consensus estimate.

Second Quarter Performance

Operating income was $261 million, down from $279 million in the prior year quarter, representing a 7.4% operating margin, a decrease of 45 basis points. Selling, general and administrative (SG&A) expenses decreased 0.9% year-over-year to $1.2 billion, remaining consistent at 33.8% of total revenue.

Inventory levels stood at $2.9 billion, a 3% decrease year-over-year. Operating cash flow was $552 million, compared to $598 million in the prior year. The company also received approximately $150 million in tariff refunds during the quarter.

For the first half of FY26, net sales decreased 1.2% year-over-year to $6.3 billion. Diluted EPS for the six-month period was $1.18, compared to $1.23 in the prior year.

Capital Allocation

Kohl's announced it is restarting its share repurchase program, authorizing up to $100 million in buybacks in 2026 under its existing $3 billion authorization. The Board of Directors also declared a quarterly cash dividend of $0.125 per share, payable September 23, 2026.

Long-term debt decreased by $195 million compared to the prior year, primarily driven by $113 million of debt repurchased at a discount of $15 million.

What the Numbers Show

The significant expansion in gross margin (+305 bps) contrasts with the decline in net sales (-0.9%), suggesting that cost management and tariff refunds are currently offsetting top-line softness. While operating income declined slightly due to lower sales volume, the stability of SG&A as a percentage of revenue indicates disciplined expense control. The restart of share repurchases signals management confidence in the balance sheet, which has seen long-term debt reduction and increased cash reserves ($821 million vs $174 million prior year).