Kohl’s (NYSE:KSS | KSS Price Prediction) is delivering a strong-on-paper quarter Wednesday. Yet, investors are treating the report as a warning that the profit beat leans heavily on a one-time tariff refund rather than a durable rebound in demand.
The State Street SPDR S&P Retail ETF (NYSEARCA:XRT) is up 0.1% to $87.99, holding steady as the sector digests a wave of tariff-refund quarters. The SPDR S&P 500 ETF Trust (NYSEARCA:SPY) is down 0.1% to $764.94, isolating today’s action to a single-name story.
Kohl’s stock is down 6% to $16.65 in early Wednesday trading, extending a slide that had left shares down 12% year to date through Tuesday’s close. Meanwhile, Ross Stores (NASDAQ:ROST) stock is up 0.1% to $241.50 after its own tariff-boosted quarter last week. TJX Companies (NYSE:TJX) stock is down 0.5% to $138.80, while Macy’s (NYSE:M) stock is flat at $22.60.
Tariff Refund Powered the Margin Beat
Kohl’s reported adjusted diluted EPS of $1.28 against a $0.57 consensus, on revenue of $3.52 billion that ran ahead of the $3.4 billion expected. The company’s gross margin expanded 305 basis points to 43%, and operating income rose to $261 million. The heart of the story sits inside those margin numbers. Kohl’s disclosed $150 million of tariff refunds in the quarter, of which $100 million flowed through gross margin. Strip that benefit out, and much of the margin expansion goes with it. Kohl’s net sales decreased 0.9% to $3.3 billion, with comparable sales also down 0.9%. CEO Michael Bender stated, “Our second quarter results reflect the ongoing progress against our initiatives, leading to another improvement in our comparable sales trend.” The reaction in Kohl’s stock suggests investors want to see that trend hit positive before crediting the company for a turnaround.
Peer Comps Show What Kohl’s Is Missing
Ross Stores reported comparable store sales up 10%, its second consecutive quarter of double-digit comp growth, on revenue of $6.26 billion and adjusted EPS of $2.66 versus a $1.94 consensus. The chain also received $253 million in tariff refunds worth $0.60 per share. However, Ross Stores’ operating margin expanded 205 basis points even excluding that benefit.
TJX posted a 4% consolidated comp increase, led by HomeGoods and TJX International each up 7% and TJX Canada up 6%. The company raised full-year adjusted EPS guidance to $5.15 to $5.20 and lifted its long-term global store target to 7,500 stores. Its $331 million of tariff refunds is broken out separately from adjusted results.
Macy’s most recent quarter delivered 3% comparable sales growth across all three nameplates, with Bloomingdale’s up 10.2%. Every peer in this cohort produced organic comp growth. Kohl’s did not.
Raised Outlook and Buyback Restart
Kohl’s raised its full-year 2026 guidance, now calling for net sales and comparable sales down 1.5% to flat, adjusted operating margin of 3.5% to 4%, and adjusted diluted EPS of $1.80 to $2.40. Capital expenditures are pegged at $350 million to $400 million.
The retailer is restarting share repurchases of up to $100 million in 2026 under an existing $3 billion authorization, and declared a $0.125 quarterly dividend on August 18, payable September 23 to shareholders of record September 9. Kohl’s cash and equivalents climbed to $821 million against $174 million a year earlier.
The balance sheet is real and improving. The demand picture still looks fragile. Investors appear to be pricing the second half of that story more heavily than the first.
What to Watch
Kohl’s is hosting its Q2 2026 earnings conference call starting at 9:00 a.m. ET today, and management commentary on traffic, promotional cadence, and future tariff-refund timing could shift sentiment before the close. The retail ETF’s near-flat action argues that today’s decline is a verdict on Kohl’s execution rather than a sector event.
Traders may want to keep an eye on whether Kohl’s guide can hold without repeat refund tailwinds through the back half. Given the reliance on one-time items and continued negative comps, moderate position sizing looks appropriate for their exposure until organic comp growth appears.
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