Kohl’s Raises 2026 Outlook and Restarts Buybacks After $150 Million in Tariff Refunds

Kohl’s raised its fiscal 2026 profit outlook and said it will restart share repurchases after receiving about $150 million in refunds tied to tariffs imposed under the International Emergency Economic Powers Act. The retailer said roughly $100 million of those refunds flowed through second-quarter gross margin, materially changing the profit picture for the period even as sales remained below last year’s level.

For the full year, Kohl’s now expects adjusted diluted earnings of $1.80 to $2.40 per share, up from its previous range of $1.00 to $1.60. Adjusted operating margin is forecast at 3.5% to 4.0%, compared with the earlier 2.8% to 3.4% range. The sales outlook also improved modestly, with net sales and comparable sales now expected to decline as much as 1.5% or remain flat. The previous forecast allowed for a decline of as much as 2%.

Kohl’s reported the changes alongside results for the 13 weeks ended August 1. Net sales fell 0.9% to $3.318 billion and comparable sales also declined 0.9%. Gross margin rose to 43.0% of net sales from 39.9% a year earlier, an increase of 305 basis points.

Tariff Refunds Provide a Large Margin Benefit

The tariff refunds were a major contributor to that margin improvement. Kohl’s said it received approximately $150 million during the quarter and that about $100 million flowed through gross margin. The retailer explicitly said its revised 2026 guidance includes the benefit of the IEEPA tariff refunds, making the refunds an important factor in interpreting the higher earnings forecast.

Cost of merchandise sold declined to $1.893 billion from $2.011 billion a year earlier. At the same time, selling, general and administrative expenses fell 0.9% to $1.188 billion and remained at 33.8% of total revenue. Inventory ended the quarter at $2.913 billion, down 3% from $2.994 billion a year earlier.

Operating income was $261 million, compared with $279 million in the prior-year quarter. The comparison is affected by unusual items in 2025: last year’s quarter included a $129 million gain on a legal settlement and $11 million of impairment, store-closing and other costs. On an adjusted basis, prior-year operating income was $161 million. Kohl’s reported no comparable adjustments in the latest quarter, so GAAP and adjusted operating income were the same.

Net income was $151 million, or $1.28 per diluted share, compared with $153 million, or $1.35 per diluted share, a year earlier on a GAAP basis. Adjusted net income in the 2025 quarter was $64 million, or $0.56 per diluted share. That makes the adjusted year-over-year earnings comparison considerably stronger than the headline GAAP comparison, although the tariff refunds were a substantial benefit in the current period.

The first-half figures show the same mix of soft sales and improved margins. Net sales for the first six months fell 1.2% to $6.316 billion and comparable sales declined 1.0%. Gross margin increased 162 basis points to 41.5%. First-half operating income was $307 million, compared with $339 million a year earlier and adjusted operating income of $221 million in the prior-year period. Net income was $137 million, or $1.18 per diluted share, versus $139 million, or $1.23 per share, a year earlier.

Guidance Rises Even as Sales Remain Under Pressure

The revised outlook represents a clear step up from the forecast Kohl’s maintained after its first quarter. In May, management expected adjusted diluted EPS of $1.00 to $1.60 and an adjusted operating margin of 2.8% to 3.4%. Kohl’s now sees adjusted EPS of $1.80 to $2.40 and adjusted operating margin of 3.5% to 4.0%.

Management also tightened the expected sales range. Net sales and comparable sales are now projected to decline between 1.5% and zero, compared with the previous range of a 2% decline to flat. The change is an improvement, but it still leaves the retailer planning for anything from a modest decline to no growth for the full year.

Capital spending guidance was unchanged at $350 million to $400 million. That matters because the stronger earnings outlook is not being paired with a reduction in planned investment. Kohl’s is maintaining its capital expenditure range while also returning additional cash to shareholders through the restarted buyback program.

The second quarter itself did show a better comparable-sales trend than the first. Comparable sales were down 1.1% in the first quarter and down 0.9% in the second. Net sales declined 1.7% in the first quarter and 0.9% in the second. The improvement is incremental rather than a return to growth, which helps explain why the company’s full-year sales range still includes a decline.

Operating cash flow was another mixed point. Kohl’s generated $552 million of operating cash flow in the second quarter, down from $598 million a year earlier. For the first six months, operating cash flow was $478 million compared with $506 million in the prior-year period. The cash flow figures therefore did not rise alongside the margin rate, despite the large tariff refund benefit.

Buybacks Return as Liquidity and Debt Metrics Improve

Kohl’s said it will restart share repurchases of up to $100 million during fiscal 2026 under its existing $3 billion authorization. The move adds buybacks back to the capital-allocation plan after management highlighted progress in strengthening the balance sheet.

Cash and cash equivalents stood at $821 million on August 1, compared with $174 million a year earlier. Borrowings under the revolving credit facility were zero, versus $75 million at the same point in 2025. Long-term debt declined to $1.325 billion from $1.520 billion.

The retailer said the $195 million year-over-year reduction in long-term debt was driven mainly by $113 million of debt repurchased in 2026 at a $15 million discount and $87 million of debt repurchases in the prior year. Those changes give Kohl’s more room to combine business investment, dividends and share repurchases, although the company has not committed to using the full $100 million buyback amount.

Kohl’s is also continuing its quarterly dividend. The board declared a cash dividend of $0.125 per share on August 18, payable September 23 to shareholders of record at the close of business on September 9.

The capital-return decisions now sit alongside a much higher earnings range than Kohl’s carried into the quarter. The central qualification is that management has directly included the IEEPA tariff refund benefit in that guidance, while sales are still expected to be no better than flat for the year. The September dividend payment is the next scheduled shareholder return disclosed in the release, with the pace and timing of the restarted buybacks left to the company during the remainder of fiscal 2026.