Kohl's Digital Sales Rise 2.8% but Store Declines Stall Turnaround

Online growth isn't offsetting the stores yet

Kohl's second-quarter results for fiscal 2026 show a retailer whose online business is growing again while its overall sales keep shrinking. In the quarter ended August 1, net sales fell 0.9% to $3.3 billion, and comparable sales fell by the same 0.9%11. Digital sales rose 2.8% over the same period. Store sales fell 2.0%, and stores still carry most of the company's volume12. Because that store base is so large, a modest online gain gets swallowed. Every report on the quarter lands in the same place: sales growth hasn't come back.

The weakness wasn't in one place. Management said both the number of transactions and the average transaction value slipped12. Shoppers came a little less often and spent a little less when they did. Placer.ai data put the year-over-year decline in store visits at 1.4%2. Neil Saunders of GlobalData Retail said it was the eighteenth straight quarter of falling comparable sales, and he said that streak keeps him from calling Kohl's a business in full recovery9.

The ecommerce numbers deserve the closest look. They are the part of the business that is actually growing, and management is relying on them to carry the turnaround story.

Marketplace, pickup and delivery partners

Marketplace was the fastest-growing piece. Kohl's says third-party marketplace sales rose 88% year over year in the quarter12, and gross merchandise value is up 75% for the year to date15. Chief financial officer Jill Timm said comparable sales would have been down only 0.2%, not 0.9%, if marketplace GMV were counted13. The company plans to more than double its marketplace product and vendor selection this year. The aims are to cover more categories, fill gaps in its own inventory and meet seasonal demand17.

That adjustment needs a caveat. Marketplace GMV measures the value of goods sold by outside vendors on Kohl's site, which is different from revenue Kohl's books itself. Timm's reframed number is a fair indicator of customer engagement, but it isn't the comparable-sales figure the company reports. The 65-basis-point gap does show that marketplace is becoming a real lever. It also shows how much the online story depends on a model where Kohl's holds less inventory risk and keeps a smaller share of each sale.

Fulfillment is changing too. Store pickup now makes up more than 20% of digital demand18. That means a fifth of online orders send shoppers into stores, where they might buy something else. Kohl's has also widened same-day delivery through Instacart and added a DoorDash partnership in July17. These moves make sense for a chain whose freestanding, off-mall locations can double as local fulfillment hubs. Morningstar analyst David Swartz has called those locations an underrated asset, along with the company's more than 30 million loyalty members1.

The company is also spending on technology. CEO Michael Bender said most core customer journeys now run on a new digital platform, with faster pages and better behavior on product pages, in the cart and at checkout13. He described Kohl's AI shopping assistant cautiously: only a small share of customers use it so far, but those who do convert at higher rates and bring in more revenue per visit1317. That's a fair early signal, not proof. No outlet reported how many shoppers use the assistant or how much revenue it generates.

Profit came from margins, not shoppers

The headline profit numbers make the quarter look better than demand does. Diluted EPS was $1.2811, well above the 57 cents analysts expected, while revenue came in about $80 million below forecasts12. Gross margin rose 305 basis points to 43.0%11.

Most of that improvement came from a one-time source. Kohl's received about $150 million in tariff refunds during the quarter, and about $100 million of that went through gross margin11. Excluding the refunds, gross margin rose only about 5 basis points, according to a summary of the earnings call15. Reported operating income actually fell, to $261 million from $279 million a year earlier11. The prior-year GAAP figure had been lifted by a $129 million legal-settlement gain, and on an adjusted basis last year's operating income was $161 million11.

The coverage reports these numbers consistently but emphasizes different things. Some outlets led with the profit beat and the raised guidance19. Others led with the falling sales10. One later analysis described revenue as "flat" year over year6. That overstates things, since the company reported a 0.9% decline in both total revenue and net sales11. The accurate reading is that profits improved mostly because of tariff refunds and cost control, not because customers bought more.

The balance sheet is the stronger part of the story. Cash was $821 million at the end of the quarter, compared with $174 million a year earlier11. Long-term debt dropped to $1.33 billion19. Kohl's is restarting share buybacks and plans about $100 million in repurchases in 202615. Inventory was down 3%11, even as receipts rose 7% to support toys, jewelry and juniors. The company also cut its number of distinct items by a mid-teens percentage while stocking each remaining item more deeply17.

Guidance and weak spots

Kohl's raised its full-year outlook. It now expects net and comparable sales between flat and down 1.5%, an adjusted operating margin of 3.5% to 4.0%, and adjusted EPS of $1.80 to $2.4011. The earlier forecast allowed for a sales decline of as much as 2%10. Even at the top of the new range, sales would be flat, and the upgrade rests partly on the tariff money19.

Weak categories make it harder to count on improvement. Sales at Sephora at Kohl's fell 4% in the quarter. Bender blamed major beauty brands for expanding their distribution to other retailers7. Fitch Ratings research estimates the Sephora partnership accounts for about 10% of Kohl's total sales7, so the business that drove growth in recent years is now pulling comparable sales down. Women's apparel fell 1.5%, partly because of inventory constraints in the company's own brands16.

There were some gains. Proprietary brands rose 3%, home rose 1%, juniors rose 10%, and toys grew by double digits1516. Sales to Kohl's Card holders rose 1%, which reverses earlier declines and suggests some loyal customers are coming back12. The company is also adding Babies"R"Us shops to 56 more stores. Bender said baby gifts and accessories saw solid growth in the second quarter5.

Holiday discounts and competition

Kohl's main customers have low to middle incomes and are under pressure. Bender has pointed to persistent inflation in everyday costs such as gas and food2. Kohl's response is to cut prices: Deal Bar and Toy Towers displays with items under $10, back-to-school items priced under $25, and a longer Deal Days event to compete with Amazon, Target and Walmart2. Management has said it will put the tariff refunds back into lower prices, marketing and store payroll, and it expects fall gross margin to come in lower as a result15.

The competition is strong. Placer.ai found that traditional apparel retailers lost 3.5% of store visits in the second quarter, while visits to Ross Dress for Less rose 16.4%59. Macy's, another department-store chain, has reported five straight quarters of comparable sales growth4. That weakens the argument that the whole category is simply in decline. Circana's Marshal Cohen expects holiday spending to grow less than 2%2.

Our reading

Kohl's isn't collapsing, but its turnaround has stalled. Online growth, the rapid rise of marketplace, the pickup business and new delivery partnerships show the company has modernized how it sells. None of that is yet big enough to offset falling store sales, a weaker Sephora business and customers who are spending carefully. The profit beat came mainly from tariff refunds, and management is already spending that money on discounts.

The third-quarter report, scheduled for November 1210, is the next real test. The number to watch is whether digital growth and marketplace momentum finally push reported comparable sales, not the marketplace-adjusted version, back above zero. If they don't, Kohl's will have a cleaner balance sheet and better ecommerce operations but still no sales growth.