Dive Brief:
- Kohl’s Wednesday reported progress in its turnaround, as Q2 net sales fell less than 1% year on year to $3.3 billion, with comps also down less than 1%. Sephora at Kohl’s sales fell 4%, after dropping in Q1.
- Gross margin expanded by 305 basis points to 43%, helped by some $150 million in tariff refunds, which will go to inventory reduction, vendors and price cuts. Net income fell over 1% to $151 million.
- The department store raised its full-year guidance, with net sales and comp sales now expected to be flat or fall as much as 1.5% compared to 2025, up from flat to down 2%. Adjusted operation margin is expected to range from 3.5% to 4%, up from 2.8% to 3.4%.
Dive Insight:
Sephora at Kohl’s has been contributing about 10% of the department store’s topline, and until recently, has contributed to its growth, according to Fitch Ratings research.
Now it may be contributing to its declines.
This was Kohl’s 18th straight quarter of declining comps, though it was the best performance since Q3 2021, per GlobalData research. Private labels, a major focus of improvement, delivered 3% comp growth.
Kohl’s CEO Michael Bender said that, at Sephora at Kohl’s, a lack of fresh products, plus some weakness in areas of the beauty category, were largely responsible for the change in fortune. Fragrance, hair care and makeup were strong, but “skin care had a challenging quarter,” he told analysts on a Wednesday morning call.
“We expect the softer performance we've seen year to date to persist until we can reach full scale with new brands and cycle through the headwinds from expanded distribution from a few of the bigger brands,” he said.
In the first half of the year, beauty has remained a strong category in the U.S. despite consumer wariness, driven by fragrance, skin care and “self-care focused products,” according to Circana research. Prestige beauty sales rose 7%, topping $17 billion, and mass retail also rose 7%, topping $39 billion.
The persistent strength bodes well for Kohl’s despite the recent downturn.
“Longer term, we expect beauty to remain a contributor to comps at Kohl’s due to inherent strength in the beauty category and the benefits of its Sephora partnership,” Fitch Ratings Senior Director David Silverman told Retail Dive by email.
In anticipation of the holiday season, Sephora at Kohl’s is expanding its assortment as well as its merchandising. That includes the rollout of holiday outposts in 130 stores featuring popular gift sets, and, in November, fragrance towers in 250 stores.
