Kohl's Q2 Earnings Miss: Can This Retailer Turn the Tide?

Investors, buckle up. Kohl’s (KSS) is about to face its next big test with the May 29 Q1 2025 earnings report, and the stakes couldn’t be higher. The retail sector is a minefield of tariffs, inflation, and digital disruption, and Kohl’s fundamentals are showing cracks. But is this a buy-the-dip opportunity or a warning sign to run? Let’s break it down.

Kohl’s Fundamentals: Lagging Behind the Pack

The numbers scream caution. Kohl’s operating cash flow dropped to $648 million in fiscal 2024, down from $1.17 billion the prior year, while net sales fell 7.2% to $15.4 billion. Compare this to Macy’s, which, despite its own struggles, saw luxury divisions like Bloomingdale’s deliver 6% comparable sales growth. Meanwhile, Target’s digital sales rose 8.7% in Q4 2024, and Walmart’s U.S. e-commerce business turned profitable in Q1 2026.

Kohl’s has slashed its dividend to $0.125 per share, a 75% cut from 2024, signaling deep financial strain. Its balance sheet isn’t helping either: $9.76 billion in liabilities versus $3.8 billion in equity leaves little room for error.

Near-Term Risks: A Perfect Storm

1. Tariff Headaches: Like its peers, Kohl’s is stuck with 30% tariffs on Chinese imports, which now account for 50% of its merchandise. The CEO warned these costs could force price hikes by late summer—bad news for a retailer already struggling with 4-6% comparable sales declines.

2. The Earnings Miss: Analysts expect Kohl’s to report a $0.10–$0.60 diluted EPS, down from $0.98 in Q1 2024. If sales miss even slightly, shares could crater. Remember, Target’s Q1 report saw its stock drop 8% on a 3.8% comparable sales decline—and Kohl’s has deeper wounds.

3. The “Value” Trap: While Kohl’s competes on price, discount retailers like Walmart and Target are eating its lunch. Walmart’s $1–$5 seasonal items and Target’s same-day delivery surcharges are luring price-sensitive shoppers away.

Long-Term Catalysts: Can Kohl’s Turn It Around?

1. Store Optimization: Kohl’s is closing underperforming stores and focusing on 125 “go-forward” locations. Macy’s similar strategy boosted luxury sales—could this work for Kohl’s?

2. E-Commerce Push: The company aims for 20% e-commerce growth, but it’s lagging behind peers. Walmart’s e-commerce now grows at 21–22% annually—if Kohl’s can match that, it could stabilize margins.

3. Cost Discipline: Kohl’s $400–425 million capital spend is half of Walmart’s, but every dollar must count. A leaner inventory and renegotiated vendor deals could improve margins.

4. Strategic Partnerships: Like Macy’s kate spade collaboration, Kohl’s could boost its brand with high-margin partnerships. Its home goods and apparel lines are a starting point.

The Bottom Line: Buy the Dip or Bail?

Kohl’s is a high-risk, high-reward play. The stock trades at a P/E of 8.5, below its 5-year average of 15, but that’s because earnings are collapsing. If Kohl’s can deliver on its operating margin guidance of 2.2–2.6%, and stabilize sales, this could be a steal.

But the red flags are glaring: tariffs, weak cash flow, and a dividend cut suggest management is fighting for survival, not growth. If the Q1 report misses badly, the stock could test $10—a 30% drop from here.

Action Plan:
- Aggressive Investors: Buy now at $14.50, but set a $12 stop-loss. If sales beat estimates, this could surge to $18.
- Wait-and-See: Hold off until the earnings report. If they surprise with a 3% sales beat, buy aggressively.

The retail sector is brutal, but Kohl’s has the scale to survive—if it can execute its turnaround. This isn’t a “buy and hold” stock—this is a high-stakes gamble. Only take it if you’ve got the stomach for volatility.

Final Verdict: Kohl’s is a sell on strength ahead of earnings, but a buy the dip candidate if the report shows fire under the company’s turnaround. Stay tuned!