What: Kohl’s margin gains and improved profit outlook reflect disciplined cost controls and strategic brand partnerships, despite ongoing sales declines.

Why it is important: This development demonstrates how operational discipline and brand partnerships can drive profitability even as sales decline, reinforcing trends seen in recent retail analyses.

Kohl’s has begun to see the early results of its turnaround strategy, with second-quarter reports showing margin gains and a raised profit outlook for 2025, even as sales continue to decline. The company’s net income rose to $153 million, up from $66 million a year earlier, though adjusted net income slipped slightly. Net sales fell by 5.1 percent, and comparable sales dropped 4.2 percent, but gross margin improved by 28 basis points, largely due to a greater focus on proprietary brands, category mix, and better inventory management. Expense controls, particularly in stores and marketing, led to a 4.1 percent reduction in SG&A costs. Kohl’s has also expanded its impulse queue lines and streamlined assortments, while the full rollout of Sephora is on track to become a $2 billion beauty business. Leadership remains in flux, with Michael J. Bender serving as interim CEO following recent governance challenges. Despite these headwinds, Kohl’s disciplined operational approach and brand partnerships are beginning to resonate, positioning the retailer for gradual improvement.

IADS Notes:

Kohl’s recent performance echoes findings from August 2024, when effective cost controls and inventory management led to a profit forecast upgrade despite sales declines. The Sephora partnership, which generated $1.4 billion in sales by March 2024, and the introduction of new proprietary brands have been key to category growth. Operational changes, such as leaner inventories and expanded impulse queue lines, align with broader industry moves toward efficiency. Leadership instability, highlighted by Michael J. Bender’s appointment as interim CEO in May 2025, remains a challenge, but the company’s strategic direction and operational discipline continue to support its turnaround.

Kohl’s turnaround efforts start to kick in, but sales still declining