Kohl’s (KSS) Q4 2025: Proprietary Brands Flat as Store Sales Drop Mid-Single Digits
Kohl’s exited 2025 with improved inventory discipline and expense management, but store traffic and top-line sales remain pressured as the retailer pivots back to proprietary brands and value messaging to reengage its core customer. Management’s 2026 guidance signals a slow, operationally intensive turnaround, hinging on assortment curation, deeper inventory in basics, and sharper price points to regain lost share. Investors should watch for traction in proprietary brand penetration and digital conversion as the year progresses.
Summary
- Proprietary Brand Focus: Kohl’s is doubling down on its own brands to reengage core customers after years of mix dilution.
- Operational Reset: Inventory depth, assortment curation, and sharper value statements are central to the 2026 turnaround plan.
- Measured Recovery Path: Management expects gradual sales improvement, with a return to growth dependent on execution and macro stabilization.
Performance Analysis
Kohl’s Q4 results reflect a business in transition, with net sales down 3.9% and comparable sales off 2.8%, as store traffic and transactions lagged. Store sales dropped mid-single digits for both the quarter and full year, a trend only partially offset by low single-digit digital growth in Q4. Digital sales, now at 35% penetration, benefitted from higher traffic but continued to struggle with conversion and inventory availability, especially among Kohl’s cardholders who remain down mid-single digits.
Gross margin expanded 25 basis points to 33.1% in Q4, supported by disciplined inventory management and lower clearance markdowns, though this was partially offset by higher shipping costs. SG&A fell 4.9% on expense controls, helping drive a significant improvement in bottom-line earnings per share versus last year. While the company ended the year with a strong cash position and no revolver borrowings, other revenue (primarily credit) declined 9% in Q4, reflecting lagging performance among credit customers and a lower receivables base. Inventory was down 7% year-over-year, positioning Kohl’s with fresher spring receipts.
- Traffic Remains the Core Challenge: Average transaction value held flat, but store traffic and transactions remain below pre-pandemic levels, especially among core credit customers.
- Proprietary Brands Mixed: Overall proprietary brands were down 3% in Q4, but apparel was flat, and juniors grew 8%—highlighting where brand investments are paying off.
- Expense Discipline Offsets Top-Line Weakness: SG&A and inventory reductions helped protect margins, but future growth will require top-line stabilization.
Bottom line: Kohl’s is stabilizing foundational metrics, but sustained comp growth will require execution on assortment, value, and customer engagement levers that remain in early innings.
Executive Commentary
"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."
Michael Bender, Chief Executive Officer
"Gross 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."
Jill Tim, Chief Financial Officer
Strategic Positioning
1. Proprietary Brands as Growth Engine
Kohl’s is re-centering its merchandising strategy around proprietary brands, such as LC Lauren Conrad, Tech Gear, and Flex, seeking to rebuild loyalty among Kohl’s cardholders and drive higher productivity per customer. The Buy Kohl’s campaign aims to elevate these brands across in-store and digital channels, with investments in inventory, marketing, and in-store presentation (e.g., improved signage, mannequins, and curated assortments).
2. Value and Trip Assurance
Value messaging and trip assurance are central to recapturing traffic amid macro pressure on low-to-middle income shoppers. Kohl’s is sharpening price points (notably with under $10 offerings in toys and impulse zones), simplifying promotions, and expanding coupon eligibility to drive store visits and conversion. Ensuring the right product is in stock at the right time—particularly basics—remains a key operational focus.
3. Omnichannel and Digital Modernization
Digital sales stability signals a potential growth lever as Kohl’s upgrades its site structure, personalization, and fulfillment capabilities (including BOPUS, buy online pick up in store, and BOSS, buy online ship to store). Store-enabled fulfillment and curated digital experiences are intended to boost conversion and capture incremental demand, especially as inventory depth improves.
4. Inventory and Assortment Reset
Disciplined inventory management has led to a 7% year-over-year reduction, supporting margin and fresher receipts. The focus is shifting from breadth to depth, especially in high-turn basics and proprietary brands, while reducing redundant SKUs and over-assortment in categories like seasonal home decor.
5. Store Experience and Adjacency Optimization
Store layout changes—such as moving juniors to the front, expanding impulse lanes, and elevating proprietary brands—are designed to drive cross-shop and increase dwell time. Sephora at Kohl’s continues to provide new customer acquisition opportunities, with adjacency strategies (e.g., juniors near Sephora) aimed at maximizing conversion.
Key Considerations
The strategic reset at Kohl’s is multifaceted, with execution risk around assortment, value, and digital acceleration. Investors should monitor:
- Brand Penetration Shift: Proprietary brands are being prioritized for margin and loyalty, but their ability to offset traffic declines is unproven at scale.
- Trip Assurance Execution: Inventory depth and in-stock rates must improve, particularly in basics, to rebuild trip frequency and trust.
- Digital and Omnichannel Leverage: Digital conversion and fulfillment capabilities are critical to offsetting store weakness, especially as digital penetration rises.
- Expense Management Sustainability: Margin gains have come from cost control, but future growth requires top-line reacceleration, not just lower SG&A.
- Macro Sensitivity: The core customer remains under financial pressure, making value and promotional strategies vital but margin-dilutive if not carefully managed.
Risks
Kohl’s remains highly exposed to discretionary spending trends among low-to-middle income consumers, with persistent macro headwinds likely to pressure traffic and comp sales. Execution risk is elevated as the company pivots its assortment and promotional strategy, while digital growth, though promising, could compress margins further. Credit revenue will lag sales improvements due to lower receivables, and any missteps in inventory or value messaging could delay a return to growth.
Forward Outlook
For Q1 2026, Kohl’s guided to:
- Comparable sales down low single digits
- Spring seasonal and year-round businesses off to a solid start
For full-year 2026, management guided:
- Net and comparable sales: down 2% to flat versus 2025
- Operating margin: 2.8% to 3.4%
- Earnings per share: $1.00 to $1.60
Management expects sales to build through the year, with improvements more likely in the back half as assortment and inventory changes take hold. Credit revenue is expected to lag, and gross margin will be pressured by higher digital mix and promotional intensity.
- Expense discipline and inventory control remain priorities
- Proprietary brand penetration and digital growth are key watchpoints
Takeaways
Kohl’s is in the early stages of a slow, operationally intensive turnaround, betting on proprietary brands, value, and omnichannel execution to stabilize and eventually reignite growth.
- Brand-Led Turnaround: Proprietary brands and value positioning are central to reengaging core customers, but require consistent execution and marketing investment.
- Omnichannel as a Growth Lever: Digital stability and fulfillment upgrades can offset store traffic weakness—if inventory and conversion improve.
- 2026 Is a Building Year: Investors should expect gradual improvement, not a sharp inflection, with comp growth dependent on traffic recovery and macro stabilization.
Conclusion
Kohl’s delivered disciplined cost and inventory management in Q4, but store traffic and top-line sales remain under pressure. The 2026 strategy hinges on proprietary brands, sharper value, and omnichannel upgrades to recapture lost ground. Execution on these fronts will dictate whether Kohl’s can return to sustainable growth amid a challenging retail environment.
Industry Read-Through
Kohl’s results and strategy underscore the intense pressure on mid-tier retailers serving value-conscious consumers, with traffic and discretionary spend still under macro strain. The pivot back to proprietary brands and focused value messaging is a playbook likely to be echoed by peers seeking margin protection and loyalty. Digital mix gains are a double-edged sword, offering growth but pressuring margins—an industry-wide challenge as fulfillment and promotional costs rise. Retailers with strong private label portfolios and disciplined inventory control are better positioned for resilience, but must pair cost discipline with authentic value and seamless omnichannel experiences to win back traffic.