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Hello, everyone. Thank you for joining us, and welcome to the Q1 2026 Kohl's Corporation Earnings Conference Call. After today's prepared remarks, we will host a question-and-answer session. If you would like to ask a question, please press *1 to raise your hand. To withdraw your question, please press *1 again. I will now hand the conference over to Trevor Novotny, Director of Investor Relations. Trevor, please go ahead.

Thank you. Certain statements made on this call, including those regarding our projected financial results, business outlook, and future initiatives, are forward-looking statements. These statements are based on current expectations and assumptions and are subject to certain risks and uncertainties that could cause Kohl's actual results to differ materially from those projected. These risks and uncertainties include, but are not limited to, the factors described in Item 1A of Kohl's most recent annual report on Form 10-K, 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. Kohl's undertakes no obligation to update them. In addition, during this call, we may refer to certain non-GAAP financial measures.

Please refer to the cautionary statement and reconciliations of these non-GAAP measures included in the investor presentation, filed as an exhibit to our Form 8-K as filed with the SEC and available on our investor relations website. Please note that this call will be recorded. However, replays of the call will not be updated. If you are listening to a replay, it is possible that the information discussed is no longer current, and Kohl's assumes no obligation to update such information. With me this morning are Michael Bender, our Chief Executive Officer, and Jill Timm, our Chief Financial Officer. I will now turn the call over to Michael.

Thank you, Trevor. Good morning, everyone, and thank you for joining us this morning to discuss our Q1 results. We are pleased with our start to 2026, as our comparable sales ran down 1.1% to last year, marking the best quarterly performance in over four years. In addition, we continue to manage the business tightly, resulting in strong expense discipline, inventory management, and an improved balance sheet. The progressive improvements from the prior quarter exemplify our ability to execute with agility and make necessary adjustments in our business. Moving forward, we remain realistic about the important work ahead of us, but the early results in Q1 give us increased confidence in our ability to execute against our key initiatives. Since stepping into this role one year ago, we have focused our efforts around resetting our foundation.

In order to position Kohl's for long-term success, it's imperative that we get this work right. Each day is an opportunity to win our customers' trust and business, and we are working diligently to do so. We take accountability for our performance, knowing that success may not always be linear, and we will remain agile and make strategic adjustments based on the evolving trends in our business and customer behaviors. As you saw from our release this morning, we did exactly that and are back to delivering progressive improvements in our business. Looking deeper at our Q1 results, we saw a meaningful improvement in our loyal Kohl's Card customer. This important customer base stabilized their performance and ran a flat comp in the quarter. This represents a significant improvement from the Q4, where we ran down mid-single digits.

A lot of the efforts we have taken over the past year have been tailored around re-engaging this core customer, who has proven to be an extremely productive and loyal customer. Proprietary brands were another bright spot in the quarter, running up 6% on a comparable sales basis. This performance reflects the strength of our By Kohl's brands, which offer quality products at an affordable opening price point and which can only be found at Kohl's.

Additionally, last quarter, we identified a few operational opportunities within our seasonal businesses, particularly around fall seasonal inventory planning and allocation. After identifying these opportunities, we took immediate action and implemented strategic adjustments to our buying and supply chain processes for our spring seasonal assortment. In Q1, we saw a notable benefit following these adjustments as our spring seasonal business was up mid-teens versus prior year.

While trends are encouraging, we are not satisfied with where we are. We need to continue to show up for our customers every day as they continue to put an importance on value and remain under financial pressure. I want to provide an update on the progress we're making against our key initiatives. These initiatives are specifically designed around our customers and are focused on delivering great products at an exceptional value with a frictionless and inspiring experience. Let me begin with our first initiative, delivering a more curated, balanced assortment. At the onset of this work, our product offering had become overly saturated in certain products and categories, leading to unintentional lost sales with our core loyalist customers.

We immediately began making improvements to our assortment offerings by reducing our redundancy and choice counts from market brands and reintroducing products in lost categories, such as petites and fine jewelry. Since then, we have continued to curate our assortment to further address needs across all our customers. The edits are aimed to drive a more consistent shopping experience with improved product clarity, purpose, and relevance.

In some categories, this work is well underway, and we are already yielding positive results. This gives us strong conviction as we continue this work into our remaining lines of business, with their incremental benefits to come as we progress through the year. Let me start with the categories that are further along in their initiative work. In the Q1, we had four lines of business that delivered flat to slightly positive comps, including women's, kids, accessories, and home.

A category that has always been important to Kohl's is our women's business. We've implemented a lot of changes to this category over the years and are excited about the momentum we're creating here. This category over-penetrates into our proprietary brand offering, which delivered a strong performance in the quarter. This momentum continues to be driven by our juniors business, up 10% in Q1. This strength is led by performance in our proprietary brand, SO, which is quickly becoming one of the largest brands in our women's department. As we look ahead, we will continue to lean into the success with our SO brand by expanding the assortment into dress and casual categories with our Office Edit collection. Building on the success of proprietary brands in our juniors business, we've implemented similar strategies to the rest of the women's category.

This led to strong Q1 performance in women's sportswear, driven by key proprietary brands like LC Lauren Conrad and Sonoma. Going forward, we will curate our assortment to maximize the potential of these brands, focusing on trending categories such as denim, to provide relevant, affordably priced styles. Moving to our kids category, which historically is a resilient category, as parents often tend to spend on their kids even when their wallets are stretched. Given this, we sought to find ways to elevate our proprietary brand offering in kids apparel.

A few actions we have recently taken include rolling out our FLX brand to kids in all doors by June, introducing a new tween brand, Sea + Skye, which is currently exceeding our expectations, and expanding our assortment of the opening price point Jumping Beans brand into our baby and infant category.

Outside of apparel, we are also enhancing our offerings within our toy and baby gear businesses. In toys, we will be launching an offering of K-Pop Demon Hunters and amplifying our offering of LEGO novelty sets. For our baby gear business, we're expanding our Babies R Us gifting zones with additional fixtures of high-velocity gifting and accessory items, as well as rolling out an additional 56 new Babies R Us Shop in Shops this fall.

We are excited about the opportunity we have to grow our team business with an offering of team apparel and accessories in-store and online. Looking ahead, we are implementing a value-driven family fan zone to create a one-stop destination, beginning with the World Cup in Q2. Accessories also delivered a flat comp in the quarter. We continue to benefit from the rollout of our impulse queuing lines, running up over 50% in the quarter.

The impulse product offering includes lower price point products that are often basket builders and provides an opportunity to introduce newness to our customers. Our total jewelry business, driven by fashion and bridge jewelry, remains strong. Following a successful 200-store test, we are expanding our fine jewelry offering to an additional 350 doors, viewing this as a significant white space opportunity. Complementing this fine jewelry expansion, we're also rolling out a new line of fashion and hair accessories under our proprietary SO brand.

These accessory fixtures will be placed in the juniors department to inspire customers to complete their looks with trending value-priced accessories. Our Sephora at Kohl's business underperformed in the quarter, running down low single digits. Fragrance and haircare continue to be the strongest categories, led by new brands such as KAYALI and Kérastase. Makeup and skincare underperformed in the quarter.

Looking forward, our efforts are focused on driving traffic and conversion by maximizing key holiday moments, curating a portfolio of new and emerging brands, and providing great value. We're leveraging the strength of our fragrance business for key gifting moments such as Mother's Day and Father's Day through existing brands and newness from Billie Eilish and Coach. In addition, we're expanding our makeup offering, having successfully launched M·A·C in March, which is resonating well with customers and is scheduled for a full store rollout later this year. In skincare, we're rolling out newness with trending Korean brands like Beauty of Joseon, Aestura, and Biodance. Alongside these product introductions, we're making strategic investments in dedicated social media campaigns to support these efforts. The home category outperformed in the Q1, improving over 400 basis points from our Q4 performance.

Our customers continue to respond well to newness and innovation in this category from key brands like Shark and Ninja. On the soft home and tabletop side, we're leaning into proprietary brands like Miryana and Mingle & Co. Our home decor category showed a dramatic improvement from the Q4, running up low single digits. This improvement comes following the adjustments we made within our seasonal decor businesses, where we had previously over-invested in depth and did not offer adequate choices to the customer.

We're applying these valuable learnings as we move forward, optimizing our Americana business for the 250th anniversary, as well as our fall, harvest, and winter holiday decor collections. Let me move to our men's and footwear businesses, which underperformed the company. We expect to show progressive improvements as our adjustments in these categories begin to take hold.

We anticipate our men's business to begin showing improvements in the Q2. Throughout this category, we've been making edits to improve our assortment clarity and reduce redundancy. Our proprietary brands will be our core business driver, with complementary key national brands to help offer a clear, good, better, best offering. This July, we're excited to announce the launch of Brixton, a modern lifestyle brand across 300 of our stores. Although the footwear business lagged in the Q1, we expect this business to improve as we bring in newness and more depth for back to school. This includes newness in key active brands like Nike, highlighting their V2K Run and Court Vision Low sneakers, and Adidas. We're servicing our casual footwear with proprietary brands like Apt. 9 in men's and LC in women's.

Let me move to our second initiative, reestablishing Kohl's as a leader in value and quality. Value has always been a cornerstone of Kohl's foundation, and in today's macroeconomy, it's a necessity for the low to middle income consumers that we serve. They continue to seek value in an attempt to stretch their dollars for themselves and their family when more of their money is being spent on essentials like food and gas. Last year, we began our work to deliver more consistent competitive value to our customers by increasing the number of brands eligible for coupon usage. We experienced an immediate and consistent increase in our penetration of sales included in coupon usage. We currently feel good with the edits we've made to our brand eligibility, but we will continue to closely monitor this going forward.

The most impactful way we can improve our value offerings is through unlocking the power of our proprietary brands. Now, as I previously stated, our proprietary brands increased 6% on a comparable sales basis. Our customers love the quality and affordability of the proprietary brand products we're offering, and we will continue to increase our investment in proprietary brand inventory for the remainder of the year.

To support the inventory, we're also enhancing our in-store experience and driving increased awareness through our By Kohl's marketing campaign. We began to roll out the in-store experience in Q1 with our LC Lauren Conrad and Tek Gear, both of which had strong performances in Q1. Following this success, we're continuing our efforts to enhance our in-store experience through key proprietary brands across our apparel categories. Our By Kohl's marketing campaign is off to a strong start, helping boost momentum for our proprietary brands.

In Q1, we introduced By Kohl's to consumers and highlighted a few of our key private brands with video, social content, consumer press, and through partnerships with relevant influencers and celebrities. This campaign will continue amplifying the awareness of our By Kohl's brands in the Q2 and heading into back to school. Outside of proprietary brands, we're finding additional ways to increase our value product offerings. A great example of this is within our impulse category, where we recently introduced the Deal Bar and Toy Towers in all of our stores.

The Deal Bar highlights seasonal decor and gifting, all at price points under $10. Our Toy Towers include offerings of toys at $4.99, $7.99, and $9.99 price points, with trending toys like the NeeDoh Squishy, introductory LEGO sets, and gaming cards. Both initiatives have exceeded our initial expectations as value continues to resonate with our customers.

Moving to our third initiative, enhancing our omnichannel platform to create a frictionless shopping experience. In order to create a more cohesive and frictionless omnichannel experience, we need to improve the synergies within our store and digital businesses. A key component for enhancing our experience will be our inventory management. Specifically, we're working to improve our trip assurance to create a more reliable and consistent experience for our customers. Trip assurance needs to be a key differentiator for us going forward. Simply put, the customer needs to be able to come to Kohl's, find what they're looking for in the size and color they want, and get it at an affordable price. To better achieve this, we're planning our apparel depth up high single digits and conversely planning our choice counts down high single digits.

By enhancing our inventory composition, we'll be able to see benefits across both our stores and digital channels. This provides the customer more options for how they want to receive their product, in-store, shipped to them, or through our buy online pickup in-store options. It also improves the speed to which the customer receives their products. Not only will this help create a better customer experience, it will also afford us the ability to increase our inventory turns and ensure freshness of seasonal receipts. Digitally, we're excited about the work we're doing to modernize and enhance our experience. Earlier this month, we launched a gift finder on our website that is powered by AI through Google Gemini. We're encouraged by the initial results and about the potential for these AI-enabled experiences.

These enhanced shopping experiences will help improve product discovery and customer engagement, with further opportunity to support conversion and reduce friction across the shopping journey over time. Beyond AI, we're also making progress across the core digital shopping experience. We're enhancing how customers discover and navigate our assortments through more curated digital experiences, improved storytelling, product spotlights, and brand-level filters. At the same time, we're reducing friction at key moments of the journey, including clear delivery information and easier returns. Together, these improvements are intended to make Kohl's more relevant, easier to shop, and more connected across the customer journey. Another growth driver for our digital business will be our digital marketplace. This year, we are planning to more than double our current offering of marketplace items on our website.

While still early in its growth and maturity curve, our marketplace strategy has become a more meaningful part of the business. We believe this creates an opportunity to attract and convert more customers by expanding our assortment into white space categories that complement our core offering. In closing, we're pleased with the results from our first quarter as our strategic initiatives are gaining traction. We remain intensely focused on execution and progressive improvements as we move through 2026.

Before I hand the call over to Jill, I wanted to take a moment to express my sincere gratitude to our Kohl's Associates. Our Q1 results are an exciting step in the right direction and could not have been done without all of the hard work from everyone here at Kohl's. Thank you for all you do every day to serve our millions of customers across the country. With that, I'll now hand the call over to Jill.

Thank you, Michael. For today's call, I will provide additional details on our first quarter results and provide commentary around our fiscal year 2026 guidance. Net sales declined 1.7%, and comparable sales declined 1.1% in the quarter. The difference between net sales and comp sales is due to the timing of closed stores in the first quarter last year. Going forward, we expect net sales and comp sales to be more aligned. The decline in sales can primarily be attributed to a decrease in transactions. Our stores business underperformed in the quarter, running down low single digits. This softness is primarily driven by a decline in transactions. We are addressing this by continuing to invest in store inventory to ensure better in-stock levels and trip assurance. Additionally, we are elevating the in-store environment to create a more inspiring and consistent shopping experience.

Digital sales grew 4% this quarter, fueled by increased traffic. This performance is a direct result of our strategic investments to modernize and enhance our digital experience. Our marketplace business continues to grow and become a more meaningful contributor to our overall performance. Including marketplace GMV, our comparable sales would have improved by approximately 50 basis points and have been down 0.6%. Our Kohl's Card customers delivered a flat comparable sales for the quarter, representing a 600 basis point improvement compared to Q4. This is an important stabilization of our core customer as this cohort is more loyal and productive customer for Kohl's. Other revenue, which primarily consists of credit business, declined 8% to last year. This decline was primarily driven by lower accounts receivable balances as we entered into 2026, which in turn generated less late fees and interest.

As we continue to improve the performance of the Kohl's Card customers, we expect other revenue to improve throughout the year. Gross margin improved four basis points to last year, driven by a higher sales penetration of proprietary brands. This increase was mostly offset by higher shipping costs from increased digital sales penetration. SG&A expenses decreased approximately $20 million, or 1.6%, this quarter. The decline was mainly driven by savings in our credit and corporate expenses. Depreciation expense was $174 million in Q1, relatively flat to last year. Interest expense was $63 million, a decrease of $13 million to last year. This decrease was primarily the result of the execution of open market debt repurchases at a discount of $9 million during the quarter. Our tax rate was 15%. This resulted in a net loss for the quarter of $14 million and a loss per diluted share of $0.13.

Moving on to the balance sheet and cash flow. We continue to operate our business with discipline and ended the quarter with $429 million of cash and cash equivalents and no borrowings on our ABL. This compares to $153 million of cash and cash equivalents with $545 million borrowed on the ABL last year, an improvement of over $800 million in our net cash position. Inventory decreased approximately 8% compared to last year. Our receipts were up 1% in the quarter as we made a more timely transition into our spring receipts and chased into trending businesses, resulting in a turn improvement of 8% in the quarter. Looking ahead, we will continue to accelerate our investment into proprietary brands, further reduce our choice counts and improve depth, and expect inventory to be down low to middle single digits for the year.

Now I want to turn to capital allocation, where our four priorities remain the same. Our first priority is investing in our business to drive our strategic initiatives. CapEx for the quarter were $84 million, supporting the completion of our rollout of impulse lines to all stores, new brand launches in Sephora, and regular maintenance of our store fleet. We continue to expect our full year capital spend to be in the range of $350 million-$400 million. Second, we will continue to return capital to shareholders through our dividends. In Q1, we returned $14 million to shareholders through our quarterly dividend. As previously disclosed, the board on May 20th declared a quarterly cash dividend of $0.125 per share, payable to shareholders on June 24th. Third, we'll make opportunistic debt repurchases.

During Q1, we repurchased $50 million of debt at a discount of $9 million. We will continue to evaluate the market for further debt repurchase opportunities. Last, as we continue to solidify our balance sheet and improve our business results, we will look at implementing a share buyback program in the future. Now let me provide details on our updated guidance for 2026. We are pleased with our first quarter performance, delivering results at the high end of our expectations. While we are pleased with the start to the second quarter, and we believe that our strategic initiatives will allow us to continue making progressive improvement throughout the year, we want to be mindful of the current macroeconomic environment we are operating in. We continue to see choiceful discretionary spending from our core low to middle income consumer as they remain financially pressured.

Additionally, I would like to note that our guidance currently does not include any impact from potential IEEPA tariff refunds. In the first quarter, we submitted $140 million of claims related to the Phase One CAPE tariffs we paid as importer of record. The total tariff refunds we are eligible to receive is $190 million. We did not receive any tariff refunds within the first quarter. Given that context, we reaffirm our guidance and continue to expect comp sales to be in the range of a 2% decrease to flat versus 2025. Operating margin to be in the range of 2.8%-3.4%, and earnings per diluted share of $1-$1.60. I want to extend my gratitude to all Kohl's associates for your unwavering dedication and hard work.

Our start to 2026 has been encouraging, and it is entirely due to your commitment to executing our key strategic initiatives and your intense focus on serving our customers. With that, Michael and I are happy to take your questions at this time.

We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, please press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Mark Altschwager from Baird. Please go ahead. Your line is now open.

Thank you. Good morning. Maybe just to start off, some of the best performance we've seen in a few years. The composition across categories looks more balanced. Could you just talk us through some of the key drivers to the improvement, how much you're attributing to the initiatives taking hold versus the comparison, or any competitive disruption? Relatedly, just what are you seeing quarter to date that gives you confidence that the trajectory can continue?

Yeah, thanks for the question, Mark. It's Michael. Good morning. I would say that, one, obviously we're super pleased with the way that the quarter came in in Q1. Our focus has been relentless on making sure that we are doubling down on our work around proprietary brands. That's been one of the strengths of the business in Q1, and we certainly see that continuing going forward as we continue to make further investment in that area of the business. What I love about what happened in the quarter for us around proprietary brands was that it was broad-based across women's, men's, kids categories. Juniors, as we mentioned, was up 10%, led by SO, and we feel like that is something that is really resonating with our customers.

Because we now have the opportunity to offer an opening price point to consumers who are really focused on value right now, which is a big thrust for us in terms of our commitment to delivering value, and also because of the quality of the product. I've said in the past that if we can get the product right here at Kohl's. That puts us in a really good position to win going forward. Our merchant teams and those that feed into the merchant area of our business have been really working hard to make sure that the product that we share with our customers is on point. I feel good about that progress.

As far as the outlook going forward in terms of what we see going forward, certainly the commitment to continuing our investment across the proprietary brands and across our entire assortment is important as well. Spring seasonal in Q1 was a big plus for us, up in the mid-teens, I believe was the number. Importantly, that was an indicator of how we fixed some of the challenges that we talked about in our last quarterly call with you coming out of the holiday timeframe. Our inventory is clean, and so we're offering fresh, new receipts to customers more and more now and able to actually chase in those moments where product is selling even faster than we had anticipated. Those are a couple of areas that I feel are really important for us.

Jill, I don't know if you want to share any more, but those are a couple of areas of importance for us.

Yeah, I think just on the quarter to date performance, I think one of the things we saw in Q1 is we did build our sales as the quarter went on. These initiatives definitely showed that progressive improvement. As we start Q2, we are, as I mentioned on the call, pleased with the performance. We think we can build on the continued momentum we saw behind these key initiatives, particularly the proprietary brands. As Michael mentioned, we did transition into our spring seasonal goods earlier. We're going to do that again with back to school, which we think will also be a benefit into Q2 and Q3.

Thank you. Just to follow up, you mentioned the inventory being down 8%, one of the cleanest positions in some time. Can you talk a bit more about the gross margin implications there, clearance markdowns, AUR, AUC dynamics through the year here, and just any pockets where you might want to add inventory back if the improving trend continues? Thanks again.

Yeah, I think you're absolutely right. This is probably one of the cleanest inventory positions we've been in in a while. I think one of the things to look at is our receipts were actually up in the quarter, so some of this is the compare of where our inventory was last year. Our receipts were actually up 1%, which just shows you the freshness of the inventory that we do have. We did chase receipts where we saw the trending sales. I think we feel very well positioned in terms of what our inventory looks like. From a margin perspective, obviously our big key focus here is to continue to deliver value, and that's something that we know is going to be critical for our consumer, particularly that middle to lower income customer.

By giving ourselves some room on the margin, we're able to invest back into that value to drive that consumer back to Kohl's and make them the selection of choice. We know they're going to be choiceful with who they are shopping to, so we want to make sure that we're in that consideration set, and we're going to be doing that by making sure that we're providing the value across our store, particularly proprietary brands. The Deal Bar that we're showing everything between $9.99, $7.99, $4.99 really resonating with that customer. I would say we feel good with saying our margins are going to be in that flat to slightly down range, even though we're going to have clean inventory as we invest back in value.

Great. That's the block.

Thank you for your question. Your next question comes from the line of Oliver Chen from TD Cowen. Please go ahead, your line is now open.

Hi, Michael and Jill. A lot of encouraging progress. You called out stores underperformance. Which categories do you think will help drive improvement there? When you spoke to in-stocks and Trip Assurance, would love details on categories and timing for improving that. I know you've been working on Trip Assurance, and it sounds like the Kohl's Card customer is happier. Do you expect that to continue because that's been weaker? Secondly, this is the first time I believe I've heard about Sephora underperformance. Will you expect that to continue? How much time does it take to try to reinvigorate some of those weaker categories? Thank you.

You want to take a shot first?

Sure. I think a lot of questions there, Oliver, so I'll try to hit on some of them. From the in-stock perspective, in terms of the stores, I think getting back in better in-stocks is critical from a store perspective. We have let that customer down by not really fulfilling that Trip Assurance promise that we have given them in the past. This inventory position we talked about, even though it's down 8%, receipts were up 1%. What I would tell you is particularly our apparel areas, so if you think of the areas that you want to have the in-stocks in for those key essential items, women's, men's, and kids, we did see that our depth of receipts coming in are up in the high single digits. Conversely, our choices are down those high single digits.

As the quarter progressed, we talked about our sales did get better. We're also seeing that inventory positioning get better as we enter into Q2 in terms of the in-stock level. I think that's definitely a key category. I think some other initiatives that we've put forward, the impulse up 50% in the quarter. That's definitely a store base. We're getting another unit in the basket. That is something that we're definitely seeing win from a store perspective. I think just the flowing of goods, being in a chase position and knowing that we have newness setting is a reason for the customer to make more trips back into the store. Then last, I think the investment we're making in our store experience. We started with some proprietary brands being LC and Tek Gear, really elevating that experience.

You're going to see us continue that throughout the store, really curating an experience for them using mannequins, kind of shop in shop. Giving them some inspiration on what they're buying from a fashion perspective. Clearly, women's getting to flat is a milestone for us, juniors being up 10. Juniors is one of the first places that we actually were able to have an impact. It's one of our fastest turning businesses. You can kind of see how we established that with juniors. It's been successful. It's carrying into women's, and we expect that to move into men's into Q2, as we indicated, as an opportunity for us as well. I think from a Kohl's Card performance, a lot of the efforts that we've been talking to you guys about for a year was really geared at getting back that customer.

The good news was we hadn't lost them, but we needed them to come in more frequently, and getting them to flat and having a 600-point improvement from Q4 was definitely a sign that we're doing the right things. They over-penetrated in jewelry. They over-penetrated in petites. They over-penetrated in our proprietary brand. They looked for value in the store, and they weren't finding that, and now they came back in and saw that we were providing it. I do expect we're going to continue to see our Kohl's Card customer performing. That will lag a little bit in terms of how we see that move into the other revenue line like we spoke to, but we do expect that line to improve throughout the quarter as well. From a Sephora perspective, obviously, we expect that, I think, to stay with the company guidance this year.

We do have a lot of newness coming in that we're excited about, but there's just some key categories that we need to make some moves on. Within makeup, which did lag, we do have M·A·C coming in. We are very excited about the performance of M·A·C. We will roll that out to all stores in the fall, so that should be a benefit to us. We continue to lean into fragrance, which is an outperformer for us. We, I think, have seen some newness in there, KAYALI being one of our top brands that continues to perform. On the skincare side, which did underperform as well, we are seeing some newness coming in there with the Korean skincare efforts as well. The newness is coming in.

I just think it's going to take a little bit more time before that gets back to leading the company, but we definitely expect it to be more with the company as the year progresses.

Yep. Oliver, the only other thing that I would add, too, in terms of category focus for us going forward that continues to give us encouragement about the progress that we intend to continue to make is footwear. That's been an area of the business that's lagged. We see newness coming in the back-to-school timeframe, and look to the back half of the year for that piece of the business to start to show some improved performance. That contribution will be important to our overall comps as we move forward. That's one area that we have some really designated focus on as well.

Thank you. Best regards.

All right.

Your next question comes to the line of Bob Drbul from BTIG. Please go ahead.

Good morning.

Your line is now open.

Good morning. Thank you. Jill, can you spend a little more time on the credit business, on the credit trends that you're seeing? When you think about the savings in credit and the savings in corporate expense, can you spend some time just around what you're doing and what you're seeing there? Thanks.

Sure. I think from a credit perspective, obviously, it all starts with the top line, and we really need to stabilize that customer, which this quarter really showed a mark of getting to stability with a flat comp. We do like to see that. This customer will over-penetrate into proprietary brands, so the investments that we spoke to was definitely moving back into proprietary brands. The chase that we had from an inventory perspective was really to fulfill back into those brands. You saw they were up 6% in the quarter, so definitely continued chase from that perspective. With that customer's health, we're seeing, obviously, on the credit revenue line, it's still lagging. We do expect that will improve. It'll just do that over time.

A lot of these sales, as we talked about, the quarter improved and the strength of that quarter improved each month in Q1, and this customer as well improved each month. A lot of that coming later into April as well. We should see our other revenue line improve. Obviously, the guide is for it to improve. The health of the customer is great. Payment rates are actually up, interestingly, and our loss rates are down. The health of that customer, at least from a credit portfolio, looks pretty strong as we move forward through the year. Obviously, watching that carefully, just given the pressures we're seeing from a consumer perspective, but not seeing any pressures into that portfolio yet.

In terms of the savings from a credit perspective, I think you're seeing a lot of that in terms of how we're servicing the customer from a payroll perspective. We continue to employ technology and AI within our servicing efforts, and we're seeing some of those things come through our credit line in terms of savings. Across corporate expenses, I think we're really focusing on driving returns back through our P&L. As we're doing that, we're trying to look for places that we can save in terms of overhead, and that's really where I think a lot of these corporate expenses came through. It was across all the areas of the corporate expense lines, but really trying to save there so we can invest that back into sales-driving initiatives.

For example, we did invest more into marketing in the quarter to help drive the momentum that you did see throughout the quarter.

Great. Thank you very much.

Your next question comes from the line of Paul Lejuez from Citigroup. Paul, please go ahead. Your line is now open.

Hey. Thanks, guys. Sorry if I missed it, but can you talk about the impact of tax refunds that you think might have helped you in the first quarter, if at all? Maybe also quarter to date, if you can give a little bit more detail about what you're seeing and if you think tax refunds might still be playing a part. Then also, just bigger picture, I've heard you talk about proprietary brands across the call several times. I'm curious where we're heading in terms of that private brand penetration for this year. What's built into your guidance and assumptions, and how does that percentage penetration compare to history in terms of, are we getting close to a peak in terms of what the proprietary brands will represent of the assortment? Thanks.

Great. Paul, thanks for the two questions. As far as the tax refunds are concerned, your question there, interestingly at Kohl's, that doesn't actually correlate well with our business. In terms of any impact or upside that we would see from increased dollars in the marketplace from a tax refund standpoint, we don't see that as pronounced, I'll say, as you might see with other retailers. At the same time, we love the fact that there is more money in the market, and we always love actually more money in the hands of consumers. To the extent that there has been any impact, we certainly would like to see that. As far as proprietary brand performance is concerned and where it's headed, we've said before that we're going to let the customer take us where we need to be in terms of the overall mix.

We don't have a percentage target that we're necessarily running to. As you know, with the addition of Sephora over the last four or five years or so, we're never going to get back to some of the percentages that you may have been familiar with at Kohl's in the past in terms of the proprietary and national brand mix. National brands are still very important and always will be. That's part of the formula here at Kohl's is being able to offer a rich national brand assortment along with our proprietary brands. Particularly against the backdrop now of the economy that we're working through, our proprietary brand portfolio is really resonating with customers. We said they're up 6% in the past quarter in Q1.

We see that continuing going forward. We think that that's going to be an important part of us to continue to focus on. We'll continue to place more inventory in that space with proprietary brands. We'll really let the customer take us to the spot that we need to be, whatever that appropriate mix is.

Got it. Thank you. Jill, any help you can give on the free cash flow assumption for this year?

Yeah, I think we continue to expect our operating cash flows to be around $900 million. We guided our CapEx around $350 million-$400 million. That's going to be about a half a billion to $600 million in free cash flow for the year.

That does not assume any tax refund, correct?

Correct. There's no tariff refund in any of the estimates that we had given today. Obviously, we talked about the fact that we did apply for those, but we haven't received those refunds yet. Those will be all on top of the numbers that we have guided today.

Got it. Thank you. Good luck.

Thank you.

Thank you.

I think first, the four priorities are always going to be investing back in the business. This year, $350 million-$400 million. You can see the impulse rollout to all stores, which obviously has been an effort that has been paying us back up 50% in the quarter. We continue to invest back into Sephora and our store experience, like I mentioned, really elevating that experience. Those will be the key places we invest this year. We continue to fund the dividend, always our second priority, really holding that dividend this year. Obviously focusing on de-levering and taking advantage of the opportunistic market from a debt repurchase perspective. Obviously making buys in Q4 and Q1 both at a nice discount. Really looking for those opportunities.

Your next question comes from the line of Blake Anderson from Jefferies. Please go ahead. Your line is now open.

Hi. Thanks for taking my question. I wanted to ask on the promotional optimization and simplification initiative, in your targeting process there, how are you making sure that you offer value to customers that are also optimizing your margin and AUR, across both in-store and digital? I know that's been a focus. Curious how you see that as a potential margin opportunity as well.

I think this has definitely been an effort that we've had and spoke to for a while, and I think it's really that mix of pricing and couponing to make sure that we're balancing what drives our consumer behavior. A lot of the things that we've done in the past to simplify was we've gotten rid of those stackable coupons. We tried to make it quite easy so you could get to an end price, so you understand really what you're getting from a value perspective. A lot of things that we're starting to look at today is more around personalization, targeted offers to drive consumer behavior. For example, we know our Kohl's Card customer is much more responsive to a coupon, so how can we target into that coupon?

We've also used more real-time offers, particularly in the digital channel, to get people to add more to basket or get a higher conversion rate. Really seeing those behaviors and reacting into it. Overall, we're always using an elasticity modeling to understand where that price needs to be to drive behavior. It's a push-pull perspective in terms of what we're looking at. I would say, AUR for us has really kind of been a neutral, I think, over the last several years. You've seen our ATV flat. AUR might have been slightly up with UPT down, and then UPT goes up with AUR slightly down. This quarter, what I would say is you saw our ATV was slightly up on the quarter, which did offset the traffic being down. That was more a factor of our reg selling price happening versus a little bit more clearance last year.

There's always that balance that we're looking at in terms of what our reg price needs to be with a balance of driving consumer behavior. I think what we're really focusing on is doing that in a much more targeted, personalized manner going forward versus just a general offering that has stackability around it. That's been really working for us, which has allowed us to expand margins in the past. Obviously, this year, really focusing on value. We're going to want to make sure that we're the one and the retailer of choice for that customer, and doing that through delivering more and more value. I think those efforts are what's going to be, even though we have good news coming out of inventory management, we have good news coming out of proprietary brands.

We are seeing a digital business that's lifting that then does take away some of that margin. The rest of that, we want to invest back into value to make sure that we're attracting back that customer as well as new customers into Kohl's.

That's really helpful. On that last point on new customers, and then you were talking about, AUR, wanted to drill down a little bit on the private label, 6% comp. So if you could talk about AUR versus units there. Are you seeing new customers, for your private label brands? I know that's very strong with your core customers, but curious how you're seeing maybe new customers to Kohl's interested in private label. On that point, any update on your national brand assortment, how you're thinking about any changes there?

Sure. I can start, and I'll let Michael weigh in. I think from a private label perspective, it definitely is our opening price point, as we mentioned. We had been void of an opening price point over the last couple of years. Bringing this back in really introduced another level of value for our consumer. As you mentioned, it was something our core customer had come to know and love and really did miss when we didn't have it. I'd also say, given the value proposition and the quality of this product, we also see it attracts into new customers, particularly in today's environment when they're looking for a great deal and great value, and I think that's what our proprietary portfolio really offers to them. We've spoke about FLX and our active brand across all lines of business has done incredibly well.

It's a great value at great quality, and we're seeing that really resonate, which is why we're now expanding it to kids in all of our stores. It's really done well in terms of men's and women's across, I think, all customer cohorts. Lauren Conrad has been another standout for us in women's, and then obviously, we've celebrated the SO brand across our juniors business, which I think also benefited from the adjacency we had of moving juniors across from Sephora. Sephora has been a driver of new customers for us, so they've cross-shopped into our juniors SO brand as well.

I think it definitely brings in and fulfills to all customer types. Obviously helped us really reestablish that loyalty with our core customer and getting them back to stability from a flat comp, also I think fills the need that new customers are looking for from a value perspective. In terms of national brands, I'll let Michael kind of talk to you about what we're thinking there.

Yeah. From a national brand standpoint, what I would point you toward is some of the elimination of redundancy that we've seen in the national brand assortment that we have, and a focus on some of the key partners that we have, like a Nike, a Levi's, et cetera. Those are the areas where we're really leaning in with national brands to make sure that the complement of national and proprietary brands, again, reaches the appropriate mix for us going forward. We're excited about the mix that we have in our performance in Q1, and we'll continue to have that be a focus for us going forward. In addition to, as Jill mentioned, leaning in hard with our proprietary brands, given the backdrop. I think what I would say to all of you is that right now, our customer is sitting around their kitchen table.

I've said this to you before. They're sitting around their kitchen table trying to make life work. It's the combination of how do I pay for gas, food, light bill, all the things that are necessities, and with what's left over, which retailer is the one that's going to help me stretch my dollars as far as I possibly can? To the extent that we can be sharp, yes, on price, but also on the quality and the style of offerings that we have, particularly in apparel, but across the categories, including home and others, that's where we believe we can win. That combination of both national and proprietary brands is going to be an important mix for us to stay focused on going forward. We're excited about that, and those are some of the things you'll see us continue to focus on going forward.

Really appreciate all the detail. Best of luck for the rest of the year.

Thank you.

Thank you for your questions. Your final question will come from Brooke Roach from Goldman Sachs. Please go ahead.

Good morning, thank you for taking our question. I wanted to follow up on Blake's question earlier on margins. Jill, can you spend a little bit more time talking through your forecast embedded for gross margin for the year? It sounds like you might have a little bit of additional tailwinds coming from stronger private brand penetration, offsetting this might be a little bit stronger digital penetration. Any help that you can give on the moving pieces between fuel, promotions, pricing, value, tariffs, and product costs would be very helpful. Thank you.

Great. Thanks, Brooke. You got it right. I think the biggest thing is overall, and you saw that in Q1, is we will benefit from the tailwinds of our proprietary brand. Being up 6% was definitely a benefit to margins for the quarter, and we do expect those brands to continue to outperform. Digital was up 4%, so obviously really excited about the fact we got to a point of stability last year and now showing growth in that channel. We do expect that channel to continue to grow for us, which does have some headwinds to margin with the cost of shipping. Really seeing a balance from that perspective. You mentioned fuel.

We do have fuel now embedded into the guidance that we gave you at the current rates that obviously will have both a headwind to margin from an inbound transportation perspective, as well as in SG&A, as we think about our transportation cost of moving goods from our DCs to our stores. Also considered in the guidance that we had given you, but will be a headwind from a margin perspective. I think offsetting that is obviously the clean inventory we spoke to. We did have higher reg selling in the quarter. We expect that to continue just given the fact that our inventory is clean and we're running much more of a chase model, accelerating receipts into the quarters. We would expect that to continue as well. I think the offset to that is exactly what you said around promotional activity.

We know value is core to what our customer is looking for. You heard what Michael was saying. These customers are choiceful. We need to make sure that Kohl's is in their consideration set, that's really going to be done through value. We serve a middle to lower income customer, this is very important to them. We're going to make sure that we continue to lean in on that. I think those kind of become your balancing factors, that's really where you get to the guide of that flat to slightly down, giving us some room. I would say particularly if you remember in Q4, one of the things that we talked about was not having that breakthrough pricing during those key holiday moments.

We definitely are going to make sure we're making those investments in those key holiday moments and throughout the year as well. That will be a little bit more pressure from a margin perspective as well. When you bring all those things together, I think that's really how you land on the flat to slightly down guide that we gave for the year.

Great. Just a follow-up from Michael. It's nice to see the improvement in the Kohl's Card customer trend this quarter. Are you planning on making any additional changes to the way that you communicate with that customer for the remainder of the year, whether that's additional couponing, changes in promos, or other types of targeting that you think could drive a sequential acceleration from here in that trend?

Yeah. Thanks for the question, Brooke. Yes, we'll continue to double down, if you will, on making sure that we are doing things to continue to attract that customer back to the business. As Jill mentioned, we didn't lose that customer. We lost a bit of their wallet share. With the combination of bringing more brands back into coupon eligibility, et cetera, those are the things that are helping to bring that customer back. We'll continue to focus on all the things that will help us do that. This focus on proprietary brands, we think, is one of the accelerators of what has brought that Kohl's Card customer, that's a mouthful back to our business and having that be flat for Q1.

Focusing on making sure that continues to be an area that we show to the customer will help us in that regard as well.

Great. Thanks so much. I will pass it on.