With a combined revenue of $21 trillion and $2.1 trillion in profits, the 2026 Fortune 500 is the definitive list of America's largest companies.

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F500-2021-195-Kohls

Owning the title of largest department store chain in the U.S., the company is also one of the largest retailers and sells brands from names like Tony Hawk, Jennifer Lopez, and Marc Anthony. Kohl’s is set to add beauty retailer Sephora to about 200 of its stores later in 2021 with the goal of bringing in younger shoppers.

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Founded in 1962, the department store chain has more than 1,100 stores and is headquartered in Menomonee Falls, Wis.

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This year's Fortune 500 marks the 65th running of the list.

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This year's Fortune 500 marks the 64th running of the list.

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This year's Fortune 500 marks the 63rd running of the list.

This year's Fortune 500 marks the 62nd running of the list.

This year's Fortune 500 marks the 61st running of the list. Wal-Mart claims the top spot again. See who made the list.

Wal-Mart stayed on top as its sales crept closer to half-a-trillion dollars. Apple moved into the top five. And UnitedHealth Group continued its steady climb. 

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Kohl’s is a national retailer with more than 1,100 stores in 49 states that sells clothing, shoes, home goods, toys, jewelry, and other general merchandise. It often sells at a cheaper price than competitors, and offers frequent discounts and promotions—like Kohl’s Cash. Founded in 1962, Kohl’s went public in 1992, rapidly expanding the number of its stores across the U.S. Kohl’s also has both an online and a mobile store. Some of its brands include Apt. 9, Croft &amp; Barrow, Jumping Beans, SO, Sonoma Goods for Life, Tek Gear, LC Lauren Conrad, Nine West, and Simply Vera Vera Wang.

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Q3 2025

Kohl's (KSS): Company Profile, Stock Price, News, Rankings

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Kohl's

kohl's

Thank you for standing by. My name is Brianna, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Kohl's Corporation Third Quarter 2024 Earnings Conference Call. Please note that this call is being recorded. At this time, all participants are in a listen only mode.

After the speakers' remarks, there will be a question and answer session. I'll now turn the conference over to Mark Rupe. Please go ahead, sir.

Thank you. Certain statements made on this call, including projected financial results and the company's future initiatives are forward looking statements. Such statements are subject to certain risks and uncertainties, which could cause Kohl's actual results to differ materially from those projected in such forward looking statements. Such risks and uncertainties include, but are not limited to, those that are described in Item 1A in Kohl's most recent annual report on Form 10 ks and as may be supplemented from time to time in Kohl's other filings with the SEC, all of which are expressly incorporated herein 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 make reference to non GAAP financial measures. Reconciliation of non GAAP financial measures can be found in the investor presentation filed as an exhibit to our Form 8 ks filed with the SEC and is available on the company's Investor Relations website. Please note that this call will be recorded. However, replays of this call will not be updated. So if you're listening to a replay of this call, it is possible that the information discussed is no longer current and Kohl's undertakes no obligation to update such information.

With me this morning are Michael Bender, our Independent Chair of the Board Tom Kingsbury, our CEO and Jill Timm, our Chief Financial Officer. I will now turn the call over to Michael.

Thank you, Mark, and thank you for joining us this morning. I'm going to provide some brief introductory remarks, and then I'll turn it over to Tom and Jill to review our Q3 results. We will then take some Q and A. As we shared last night, Tom Kingsbury will step down as CEO effective January 15, 2025, and will stay on in an advisory role to the new CEO and retain his position on the Board through his retirement in May of 2025. On behalf of the Board, management and all our associates, I want to thank Tom for his leadership and ongoing service to Kohl's.

Tom has a lot of history with Kohl's as many of you know, and we are grateful for him stepping in to lead us through our transformation over the past couple of years. I'm excited to share that the Board has appointed retail veteran, Ashley Buchanan as CEO effective January 15. Ashley has been CEO of Michael's Companies since 2020 and prior to that held a variety of senior executive roles at Walmart and Sam's Club during his 13 years at the company. His vast retail experience, leading operations, merchandising and e commerce will bring a steady proven leader to Kohl's as we continue to transform the business and drive future growth. Ashley has driven change by setting a clear vision, empowering teams and practicing organizational accountability for results.

We know he will be a great leader and bring a new perspective in our next chapter. I'll now turn over the call to Tom to discuss our Q3 results.

Thank you, Michael, and good morning, everyone. I would first like to thank Michael, the broader Board and management team and our associates for the opportunity to lead this great company during the past couple of years. Kohl's long term opportunity is significant and I look forward to supporting Ashley through the transition. Turning to our Q3 results. They did not meet our expectations and were frankly disappointing.

Sales have been a challenge for us throughout 2024 and weakened further in Q3. Over the last several quarters, we have implemented a significant amount of change across our assortment, value strategies and in store experience. We believe these actions will make us more competitive over the long term. However, we undervalued the short term impact this change could have on our sales performance. Comparable sales in the 3rd quarter declined 9% as sales remained soft in our apparel and footwear businesses.

Although we had a strong collective performance across our key growth areas, including Sephora, Home Decor, Gifting and Impulse and also benefited from the opening of Babies R Us shops in 200 of our stores, these are unable to offset the declines in our core business. We are not satisfied with our performance and are taking aggressive action to reverse the sales declines. We must execute at a higher level and ensure we are putting the customer first in everything we do. As Joe will discuss later in the call, our updated fiscal year 2024 guidance reflects the continuation of the sales pressure we have seen this year and our expectation for a highly competitive holiday season. My main focus today will be discussing the key drivers of our sales weakness and the actions we are taking to stabilize the sales trend now and going forward.

In assessing our business during the Q3, we identified 3 areas that led to our underperformance. They include a decline in traffic, especially early in the quarter during the back to school season a reduction of receipts in our private apparel brands, which impacted our ability to drive sales in our key value items and categories where we have lost traction that represented opportunities for us going forward such as fine jewelry, petites and intimate apparel and legacy home products. Let's start with the first area, which is the decline in traffic. In Q3, transactions declined approximately 3% after increasing approximately 2% in Q2. This change represented the entire deceleration in comparable sales in Q3 versus Q2.

Softness in transactions was most notable early in the quarter during the back to school season with August being the weakest month. Our children's business was especially challenged in apparel during this time, though improved late in the quarter. We are highly focused on driving traffic. In response to the softer trends experienced in Q3, we are increasing our touch points with our most engaged customers through more targeted offers and direct mail as they have shown a greater responsiveness to this form of marketing. In addition, given that our customer continues to be pressured, we are showcasing the great value we are offering this holiday across our merchandise assortment in our marketing message.

We will also lean into social and digital marketing to continue to drive new customer acquisition and see a significant opportunity to capitalize on the nearly 4,000,000 new Kohl's Rewards members added in 2024 with targeted rewards only events during the holiday season. The second area is a reduction in receipts in our private apparel brands, which impacted our ability to drive sales in our key value items. Over the past 18 months, we have managed inventory very tightly, largely driven by new processes implemented by operating with more open to buy liquidity and clearing goods on a more regular basis. At the same time, we increased our inventory investments in our key growth categories such as Sephora, home decor, gifting and impulse. And we have also brought in a significant number of new market brands to capitalize on Trend Bright merchandise.

Together, these investments led to meaningfully lower receipt levels in the private apparel brands, which our customers rely on. In Q3, private brand inventory decreased more than 20% as compared to the prior year and for several of our key brands, it decreased even more. Given the importance of opening price points in the current environment, not having the appropriate level of private brands hurt our ability to serve our customers. This had an outsized impact in our women's business where we have the highest private brand penetration. Was also evident in our men's and children's businesses.

And although we are pleased with the positive sell throughs, we are seeing as newness in our private brands hits the selling floor. We simply did not have enough private brands inventory given our investments in market brands and our key growth categories. I want to be clear though, we continue to believe our market brand strategy and investments into the key growth categories are the right long term strategic moves. We simply must do a better job of balancing these initiatives while managing the core business. Let me now share the immediate actions we are taking to regain balance across our assortment.

Number 1, we have already begun to balance our buys in the near term to ensure we have the proper inventory support for our key private brands. This is evident in our in transit inventory levels, which consist primarily of our private brands increasing 40% when compared to the prior year. These goods are now hitting the selling floor in time for holiday. Additionally, we are ensuring that we are leveraging market brands opportunistically through a chase approach as we build our presence rather than a replacement for our private brands, which have been taking place. While it will take some time to reposition our inventory, we do expect our actions to deliver improved relative trends in Q4 with greater benefit in early 2025.

And the 3rd area is categories where we have lost traction that represent opportunities for us going forward. The most notable example of this was our exit from the fine jewelry business, a category that had been highly valued by our customers. As we introduced Sephora Shops into our stores, the fine jewelry business was largely displaced, which resulted in a persistent headwind to our sales performance for many periods. On a positive note, we are excited to reintroduce fine jewelry to our customers this holiday season in 200 of our stores. We will also have an expanded in aisle placement of Bridge Jewelry in all stores, which will build up the positive sales growth we saw in Q3 for fashion and bridge jewelry.

Overall, we expect much stronger performance in the jewelry category in Q4 based on our initiatives. In addition to jewelry, we also see opportunities in petites, intimates and our legacy home business. In petites, we meaningfully reduced our presence in 2022, a move that at the time was in conjunction with actions to reduce inventory. This was a short sighted decision that we are committed to resolving. In 2024, we increased our petites offering and expanded the assortments through all stores this quarter.

Based on this, we expect our petites business to build in Q4 and into 2025, continuing the initial momentum we began to see in Q3. In intimates, we continue to see sales pressure in Q3. As I touched on last quarter, we have struggled with some of the key brands in our assortments due in part to lack of inventory depth, which is important in this highly sized intensive category. During Q3, we accelerated newness and enhanced step across all brands, which led to better results as we move through the quarter, including a 500 basis point trend improvement in October. We expect trends to further build in Q4, driven by better inventory support and incremental newness supported in key marketing events.

And in our legacy home business, sales within kitchen electrics, floor care and bedding remain challenging. However, we are optimistic that our efforts will gain traction solidly season driven by increased innovation, new brand introductions and a stronger value messaging. Our efforts include launching Hotelier, our new private bedding and bath brand in all stores, new assortments in floor care and compelling promotions targeted at kitchen electrics, which is a highly price sensitive category. So to summarize, we have identified the key areas of our business that have pressured our performance and we are taking aggressive action to reverse the sales declines. We expect that fixing these areas while continuing to benefit from our key growth initiatives will improve the overall sales trend starting in Q4 with full benefit accruing in 2025.

Now let me provide an update on the progress we have made in our key growth categories that are going to drive the business in Q4 and serve as a foundation for growth going forward. Starting first with Sephora, which continued to deliver strong growth in Q3 with total beauty sales increasing 15%. Comparable beauty sales increased 9%, which was an acceleration on a 2 year basis as compared to the Q2. Fragrance, Bath and Body and Skin Care were especially strong in the quarter. And brands including YSL, Laneige and Sephora Collection drove solid growth.

Looking ahead, we are confident in our ability to continue driving strong Sephora growth. For holiday, we have significantly expanded our gifting assortment building off of last year's success and we see cross shopping as a key opportunity to capitalize on as Sephora will be in more than 10 50 of our stores this holiday, 15% more than last year. Now let me provide an update on our progress in building our business in the underpenetrated categories of home decor, gifting, impulse and baby gear. In Q3, sales from these categories continued to build. Let me highlight a few of the key takeaways.

In our home business, sales of seasonal and everyday decor increased more than 50% year over year. And we also experienced solid growth across many other areas such as storage, wall art, glassware and pet. In Impulse, we drove sales growth of more than 40% as we expanded queue lines to 200 more stores in the 3rd quarter. We expect strong growth to continue as we enter the holiday season with queue lines in 4 35 of our stores. And I'm happy to share that we successfully launched Baby Star Rush Shops in 200 of our stores and online during Q3.

We are broadening our reach with young families acquiring new younger customers to Kohl's that are shopping multiple categories including children's, accessories and women's. We also introduced a Babies R Us registry in early October and are already seeing thousands of expectant others register. We expect our Baby Gear business to continue to grow as awareness builds, as we recognize the benefits from registry softness, as we open more shops in the coming years. Collectively, we continue to see these underpenetrated categories representing a significant opportunity in the coming years. Together with Sephora, the key growth categories represent high teens percent of our business today and they are growing rapidly and are expected to have a long runway of growth.

Now I'd like to share how we are approaching the holiday season. Kohl's is known for providing great holiday value and this year will be no different. We will continue to establish ourselves as a key gifting destination with an expanded selection of products across apparel such as sweaters, fleece and holiday outfitings, stocking stuffers and toys at compelling price points, Sephora gift sets, box jewelry and cold weather bedding from brands like Cuddles Dugs. Importantly, our key growth categories as well as seasonally relevant businesses like toys, jewelry and home increased by approximately 1,000 basis points in penetration and will benefit our results in Q4 as compared to Q3. From a marketing perspective, we will amplify Kohl's cash and rewards, deliver targeted offers to drive engagement and leverage influencers and social media engagement.

We expect this holiday will be highly competitive given the late Thanksgiving. Our focus will be on maximizing the big shopping days. As it relates to our more recent performance, November sales are off to a marked improvement relative to Q3 comps. We have seen solid fall seasonal demand as well as the initial benefit from the investments we have made in our private brand inventory. In addition, we have seen heightened customer engagement during the start to the holiday.

That said, there still remains a lot of holiday shopping in front of us and we are focused on executing a great customer experience. Before turning it over to Jill, I also want to highlight that we remain highly focused on expense management. In Q3, we managed expenses down 5% compared to last year and it will remain a priority of ours as we work to stabilize our sales performance. In addition, our balance sheet remains in a solid position and we expect to drive significant cash flow generation in Q4, which will reduce our revolver balance meaningfully by year end. Joe will share more on this in a moment.

To summarize my comments today, I want to leave you with 3 things. First, we continue to have strong conviction in our ability to reposition Kohl's for future growth. So recognize that we've moved too quickly in some areas. We are focused on improving sales through driving traffic, increasing receipts in our private apparel brands and regaining momentum in categories where we've lost traction. 2nd, our investments in key growth areas continue to deliver solid results.

Sephora at Kohl's continues to drive strong sales growth and bring in new customers. And we continue to build our business in home decor, impulse, gifting and baby gear, all of which are positioned to deliver incrementally this holiday season as they grow in penetration. And third, the holidays have always been an important time for Kohl's. And this year, we will deliver even more value through our expanded gifting assortment. While we expect the holiday to be highly competitive, we are well positioned from a product and marketing perspective to improve our sales trend.

I want to thank all of our Kohl's associates across the organization for their efforts to position us for a successful holiday season. I hope those listening today will get a chance to visit our stores over the coming weeks. Jill?

Thank you, Tom, and good morning, everyone. For today's call, I will provide additional details on our Q3 results as well as an update on our fiscal year 2024 guidance. Net sales decreased 8.8% in Q3 and are down 6.1% year to date. Comparable sales declined 9.3% in Q3 and declined 6.4% year to date. In Q3, transactions were down, while conversion improved.

And our average basket sizes remain lower as compared to last year. Digital sales outperformed store sales in the quarter, but both were down to last year. Other revenue, which is primarily our credit business, decreased 3.6% in the quarter, which was slightly better than our expectations. Year to date, other revenue declined 4.6%. Moving down the P and L.

3rd quarter gross margin was 39.1%, up 20 basis points versus last year. The increase was driven by inventory management and lower freight expense, partially offset by higher digital penetration and increased promotional activity. Year to date gross margin was 39.4%, an increase of 42 basis points. SG and A expenses declined 5.1 percent to $1,300,000,000 in Q3, benefiting from tightly managed expenses across the organization given the sales decline, especially in corporate and store related expenses. Year to date, SG and A expenses have decreased 3.4% compared to last year.

Depreciation expense in the quarter was $184,000,000 down $4,000,000 from last year. On a year to date basis, depreciation was $560,000,000 down $2,000,000 to the prior year. Interest expense was $76,000,000 in the quarter, down $13,000,000 from last year. The decline is primarily related to lower long term debt outstanding. Year to date, interest expense decreased $17,000,000 to $245,000,000 Net income for the quarter was $22,000,000 and earnings per diluted share was $0.20 Year to date, net income was $61,000,000 and earnings per diluted share was $0.55 Moving on to the balance sheet and cash flow.

We ended Q3 with $174,000,000 of cash and cash equivalents. Inventory at quarter end was down 3% compared to last year with on hand inventory down 7% at the end of the quarter. As Tom indicated, we are focused on better balancing our inventory levels with a renewed emphasis in our private brands, which is reflected in the 40% increase in in transit inventory at quarter end. We remain highly focused on managing inventory efficiently with the goal of increasing churn. Year to date operating cash flow is $52,000,000 while year to date adjusted free cash flow was a use of $376,000,000 Now let me touch on a couple of our capital allocation priorities.

Capital expenditures year to date were $367,000,000 significantly less than the $495,000,000 last year driven by fewer Sephora openings. We are still planning 20.24 CapEx of approximately $500,000,000 consisting of investment in 350 impulse queuing lines, 140 Sephora small shop openings, the launch of 200 Babies R Us shops and 6 new store openings, including one relocation. After investing in the business, strengthening the balance sheet and returning capital to shareholders also remain top priorities. We ended Q3 with $749,000,000 on our revolver. This was higher than last year's revolver balance of $625,000,000 with the increase largely attributable to the retirement of the May 2025 bonds earlier this year.

We remain focused on paying down our revolver balance and rebuilding our cash position and expect significant cash flow generation in Q4 to further our efforts on this front. Looking ahead, we will continue to monitor our options with respect to the July 2025 notes and will likely address them closer to maturity given the favorable coupon rate. As for shareholder returns, we continue to prioritize the payment of our dividend at current levels. In Q3, we distributed $55,000,000 in dividends to our shareholders. And as previously disclosed, the Board on November 13 declared a quarterly cash dividend of $0.50 per share payable to shareholders on December 24.

Now let me share some detail on our updated outlook for 2024. As you heard this morning, we are taking aggressive actions to stabilize our sales trend as we reposition Kohl's for future growth. As a result, we are approaching our financial outlook for the year prudently, taking into account our year to date performance and it will take time for our actions to deliver the intended outcome. For the full year, we currently expect net sales to be in the range of a 7% decrease to an 8% decrease versus 2023 as compared to our previous guidance range of a decrease of 4% to 6%. Comparable sales to be in the range of a 6% decrease to a 7% decrease.

Our previous full year comparable sales guidance range was a 3% decrease to a 5% decrease. For the Q4, our guidance implies comparable sales in the range of a 5% decrease to an 8% decrease. Other revenue is expected to be down mid single digits for the full year. We expect gross margin to be at the high end of our previous guidance of 40 to 50 basis points expansion as compared to last year. And for SG and A, we now expect SG and A dollars to be down 3.2% to 3.5% for the year as compared to our previous guidance of a 2% to 3% decline for the year.

We expect operating margin to be in the range of 3% to 3.2% as compared to our prior guidance range of 3.4% to 3.8% and EPS to be in the range of $1.20 to 1 $0.50 This compares to our prior guidance of $1.75 to 2 $0.25 With that, Tom and I are happy to take your questions at this time.

Thank you. Our first question comes from the line of Bob Drbul with Guggenheim. Please go ahead.

Hi, good morning. Thanks for taking the question.

Good morning, Tom. And Tom, best of luck on your retirement and thanks for all the help over the last few years and actually many years we go back.

Two questions for you. The first one, just when you look at the traffic trends, I think the aggressive actions that you lay out, which ones do you think will be the biggest impact to your traffic, I guess, in Q4, but also into 2025? And then the second question is, Joe, on the credit card, can you just give us an update just in terms of the trends, in terms of some of the conversions and if it's actually playing to the way that you thought it would this fall and heading into holiday? Thanks.

Well, first of all, I think the key for driving increased traffic and we're seeing that already in November is really showcasing the great values that we have on the selling floor today. The merchants really went out there and bought some really, really great product at great values. So really showcasing that we do that every year, but we really have a heightened approach this year based on what happened in the Q3. We've gone over it multiple times. Also really targeting our most engaged customers.

I think that's really important. We probably didn't do enough of that in the Q3. So we distorted it in our efforts in the Q4 through more targeted offers and more direct mail. So I really think that's going to be important. We're really leaning into social and digital marketing to drive new customer acquisition as well, trying to leverage the 4,000,000 new rewards members that we have.

So really think that those three things have and will drive increased traffic in the Q4. Jill?

Yes. And Bob in terms of credit, I think overall credit is kind of performing where we expected, obviously weighed down by the softer sales that we saw for the quarter. We are seeing payment rates are starting to drop, but all of which we anticipated, which I think you saw our other revenue line come in a little bit better than how we set expectations. As we go into the Q4, we'll start benefiting a little bit from co brands. We did launch our co brands in mid September.

So those cards were just getting in mailboxes, as we were kind of looking in October. So by the time they spend and you see that revolving interest coming into the portfolio, it's really going to be a Q4, but much more predominantly a 2025 benefit for us. As the customer continues to use it, we see those balances revolve and we get the benefit of those interest income numbers. But I think we're expecting it to be in that mid single digit range, as we close out the year. So really performing the way we expected it to this year.

Our next question comes from the line of Mark Altschwager with Baird. Please go ahead.

Good morning. Thank you for taking my question. First, Tom, just why is now the right time to be passing the torch? Just a lot of balls in the air right now with some of the strategic changes you've been making. I guess what are the guardrails you have in place to limit disruption through the transition?

And is your successor aligned in terms of a lot of this elements on the strategic agenda? Or should investors be bracing for some bigger changes in the periods ahead?

Well, they answer the last part first. Ashley is very much aligned with the strategy that we have in place right now. She's spent a lot of time with our Board of Directors, time with me. Obviously, there as always, there will be some changes and modifications and he'll want to obviously put his fingerprints on the strategies and which would what you would expect. For my timing, I signed up for 2 years and 2 years would be up in May of 2025.

I came in to help out the company in the transition and it's not an exact science in terms of hiring somebody. We are fortunate to have Ashley come in and decide to join us. And this is the way the timing worked out overall.

the team is in a good place and we have significant guardrails in terms of making sure that there isn't any big issues. But that's how the timing came about and we just felt that

it was best to do it now. I think Michael, you want to weigh in on this?

Yes, sure. Yes. Mark, it's Michael Bender here.

And just to add on to Tom's comments both about his tenure here. So first of all, I want to reinforce what we've said in all of our announcements about how grateful we are about what Tom has done over the past couple of years or so in his role. He's brought a number of really positive things to the business, inventory discipline, merchant discipline, he's brought new brands to the business. So we're excited about the impact that Tom has had. As far as the transition goes, we knew that we had, as Tom mentioned, the time based agreement with him starting in May of 2023, that would expire next year.

And so as we talked about it with Tom and the Board, we engaged in what we felt was a very robust succession planning process. And as you know, really strong CEOs are not hard are hard to find. And so when we were able to attract Ashley to the business and identified him as the ideal candidate with an availability date of mid January, that made sense to us to continue to move that process. We're pleased that he can start in the January timeframe. That will allow actually for an orderly transition with Tom staying on as an advisor, as we've said, and a Board member until May.

So we're excited about that. Specifically around the question about change in strategy, as Tom mentioned, we feel like we've got a plan in place that we are executing against. What Ashley brings and what the Board sees in him that we like and what brought him to close out the agreement to bring him on board, several things that I mentioned. He knows customers. He follows the data, and he follows what customers want and then brings solutions to them.

There's evidence of that in both his experience running Michaels as well as Walmart. Ash is a merchant, so he knows product. He's got deep digital chops and has demonstrated expertise in how to integrate digital into physical settings, which is an important part of the Kohl's business. He's obsessed with the customer experience and understands how to drive that positively from an efficiency standpoint and making sure that customers have a great experience. He knows how to operate at scale.

Kohl's is a big business, it's over 1,000 stores. So it's important for us to have someone sitting in the chair that understands how to operate at scale. And then lastly, I would say that from a character standpoint, Ashley is a principal inspiring leader of people. And our culture here at Kohl's is really important for us to continue to maintain and grow and evolve. And Ashley, we feel all of the Board members and the team have felt really comfortable with that.

He's excited about getting started and already has a number of requests for information about the business, although he doesn't start until mid January. He's been in a number of our stores. He's been developing a point of view on our digital business by ordering items online and checking that out. So, we have someone who's excited about stepping into the role. And with Tom's support in the transition, we feel good about the progress that we'll be able to continue to make while we focus on making sure that these next 6 to 8 weeks as we move through the balance of holiday period

Thank you for all of that detail. Jill, if I could follow-up on credit, you spoke briefly about the co brand rollout. I know initially when we thought the late fee change could result in a pretty significant change to the existing credit revenue stream. The co brand was thought to be an offset to that, which would imply pretty material revenue contribution as we look into 2025. Can you just walk us through the current thoughts there?

If the late fee change doesn't happen, I guess why wouldn't that be significant upside due to the current run rate of credit revenue? Thank you.

Sure. So in terms of the co brand, when we decided to launch co brand, it was really to reach the younger customer, which we know didn't really want to have a private label credit card in their pocket. So this is a new product that we could continue to evolve our loyalty through the card, but let them do it with a Visa card in their wallet. Obviously, one of the benefits to that was it's much more driven off of interest versus late fees because you run a bigger balance off of a card that you can use outside the 4 walls of poles. And obviously then we also benefited from some of the interchange fees.

So if we do not end up having any risk from the CFCB legislation, there would be that benefit that we've outlined in regards to the co brand. Of course, the bulk of that, as we stated, would be more in 2025. There will be some benefits coming through in Q4, but really need to get that card in the customer's hands, get them shopping with it and having those balances revolve before you're going to start seeing a lot of that revenue flow through. So as we approach 2025, we'll look at really kind of where that legislation lies and give you guidance that would include, I think, a nice benefit from our co brand launch and that would build throughout the year.

Excellent. Thank you and best of luck over holiday.

Our next question comes from the line of Oliver Chen with TD Cowen. Please go ahead.

Hi, Tom. You brought a lot of constructive things to the organization, including speed, agility and new categories. How would you diagnose the issues around the unintended consequences of some of these changes relative to the highly competitive promotional environment? And then second, as we look forward, fixing the core, it's been a multiyear issue in terms of apparel and embracing younger customers and also trying to get sustainably positive comps. But what's your take on what may need to be done to fix the core in terms of the new CEO coming?

And lastly, chase versus replacement, I didn't quite understand that comment in terms of that strategy, that you're undertaking looking forward as well. Thanks a lot.

First of all, obviously, one of the unintended consequences was the fact that we under placed our private and exclusive brands. I would say that was one of the biggest issues that we had. We obviously need to make sure that we're more realistic in terms of our approach to how we're placing goods that we have the right balance between the market brands, the private brands. We put again put too much pressure on the turn of the private brands. We thought we could do we can do more with a lot less and that didn't work out for us.

That's just we're in the learning mode and that was a big lesson for us, which obviously was a big unintended consequence. I think all of us have learned from that overall. So that's important. We've already gone through and for 2025, we've gone through the vendor matrixes very, very carefully to ensure that we have the right receipt reduction ratios that making sure that we aren't putting too much pressure on any of the brands that we're being much more realistic in terms of how we're approaching it. As far as chase versus replacement, making sure that we're utilizing our open to buy to go after goods when they're checking much more aggressively versus using our open to buy to replace things like our private and exclusive brands.

We just need to buy it upfront correctly, which obviously we've failed to do that, which resulted in the issue that we had with our private and exclusive brands. I don't know, you want to weigh in on any of that?

I think the biggest thing you saw Oliver was we got excited about some of the market brands, but we were also trying to really tightly manage inventory. And so there became a trade off there. And unfortunately, the unintended consequence was that we were down over 20% in our private exclusive brands. And those are brands that really are opening price point. And so when we're looking to drive value for our customer, we disappointed them not having brands they wanted at this opening price point.

And so that became a big headwind that we needed to overtake. You saw in our inventory numbers, we were down 3, but we are actually saying we're down 7 on hand. And the difference of that is really our proprietary brands. They were in transit, which we take ownership of, and they're setting as we speak. So as we saw those first couple of weeks of November plan out, we saw some of the newness in our proprietary brands hit.

We're seeing great sell throughs and I think those are one of the actions that we took that led to the market improvement that we referenced to our November results. So it was something that just takes a while to get back into given the length of time in terms of the import process. But now that we're in it, we're definitely seeing a benefit from that. So I think it's just really continuing the discipline. We think managing our inventory down mid single digits is the right answer to drive turn.

But we just have to have a little bit more discipline in staying close to those core brands our customers want and using the market brands, to really bring in that element of fashion and staying true more to that pyramid than we did during Q3.

Okay. Jill, on the guidance, what did you say it assumes for the inventory growth relative to sales in light of what you need to do to inventories? And final question on promos, what's embedded in guidance for merchandise margins and promotions? And does some of that relate to what you're seeing quarter to date, etcetera? Thank you.

Yes. I think for inventory, we're going to still expect it down mid single digit. That's where we think it's the best to run the business. We're getting back into the proprietary brands like we spoke to, but we'll balance that with less of the market brands on the table. So we feel like that's the right place to be as we end the year.

And that's what I would expect us to be running the business going forward. We have a large opportunity to improve our churn as we've spoke to, but we're going to do that in a paced approach. So we don't, do things too quickly as maybe we learned our lesson this year in doing that. In terms of margin, we are expecting it to be promotional. It always is promotional during Q4.

So we're set to do that. I think a couple of things that we found worked well for us through the last couple of years is doing more targeted offers. So as Tom just mentioned, we did that in Q3. It definitely drives our behavior, particularly around our most loyal customers. So we know that that's a way for us to drive their behavior and have them see value.

We do expect our proprietary brands to do much better than we saw in Q3 with the inventory investments that we're making, which obviously carry a better merch margin. So as we think about our margin for Q4, that's why we think we can get to the high end of the guide for the year, which would imply Q4 has a little bit of a step up in terms of what we saw in Q3. And then last, just we're in a clean position from an inventory perspective. And Q4 is typically a big quarter from a clearance, so we do expect that will be a benefit for us as well. So those are kind of the pieces of the puzzle we put together to feel confident in giving the high end of the guide on the margin for the year.

Our next question comes from the line of Chuck Grom with Gordon Haskett. Please go ahead.

Hey, thanks. Good morning and good luck, Tom, with everything. Can you guys just talk about the steps to recapture some of the lost customers that you may have alienated over the past couple of years by deemphasizing the private brands and the jewelry counters? I guess on one hand, it's a big opportunity. On the other hand, it's sometimes very hard to do.

I think this is going to come down to our investment in marketing, Chuck. And I think you saw we've run a pretty tight SG and A for the year. In Q4, you're seeing maybe a little bit, if you do the math off of what we guided the year, a little bit more of an investment in SG and A and that SG and A is going to come into marketing. So we know the holidays when we attract the most new customers to our store, it's when our loyalists see the best value that we have. So you're going to see that we're going to lean into Kohl's cash.

Kohl's (KSS) Q3 2025 Earnings Call Transcript

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