KOHLS Corp

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We are subject to payment-related risks, including in our credit card operations, that could adversely affect our sales, revenues, and/or profitability, increase our operating costs, expose us to fraud or theft, and subject us to potential liability.

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We accept payments using a variety of methods, including our private label and co-branded Kohl’s credit card, credit and debit cards, gift cards, mobile payments, cash, and checks. Acceptance of these payment options subjects us to rules, regulations, contractual obligations and compliance requirements, including payment network rules and operating guidelines and rules governing electronic funds transfers. These requirements may change over time or be reinterpreted, making compliance more difficult, costly, or uncertain.

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Our credit card operations facilitate merchandise sales and generate additional revenue from fees related to extending credit. The private label and co-branded Kohl's credit card accounts are owned by an unrelated third-party, but we share in the net risk-adjusted revenue of the portfolio, which is defined as the sum of finance charges, late fees, and other revenue less write-offs of uncollectible accounts. Changes in funding costs related to interest rate fluctuations are shared similar to the revenue when interest rates exceed defined amounts. Though management currently believes that increases in funding costs will be largely offset by increases in finance charge revenue, increases in funding costs could adversely impact the profitability of our credit card operations. On March 5, 2024, the Consumer Financial Protection Bureau ("CFPB") released a final rule reducing the safe harbor dollar amount for credit card late fees and eliminating the automatic annual inflation adjustment to such safe harbor dollar amount. The rule is subject to legal challenge, and the United States District Court for the Northern District of Texas granted a preliminary injunction, staying implementation of the rule, on May 10, 2024. On April 15, 2025, the Court entered an Order and Final Judgment vacating the rule and, as a result, the rule will not take effect. While the vacatur removes a potential impact to Kohl’s credit card revenues in the near term, we continue to monitor future regulatory action that could affect our credit card program. Although we do not currently expect a material adverse financial impact related to the vacated rule, any future changes to the regulatory framework governing credit card late fees or other aspects of our private label and co-branded Kohl's credit card program could impact revenue generated from the program and require changes to our operations or compliance practices.

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The payment and payment process methods that we accept subject us to potential fraud and theft by threat actors, including increased credit fraud risks associated with self check out, self pick up, and digital payment methods which could negatively impact our revenue and profitability. If we fail to comply with applicable rules or requirements for the payment methods we accept, or if payment-related data is compromised due to a breach or misuse of data, we may be liable for costs incurred by third parties or our ability to accept or facilitate certain types of payments may be impaired. In addition, our customers could lose confidence in certain payment types, which may result in a shift to other payment types or potential changes to our payment systems that may result in higher costs, adversely affecting our business and operating results.

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Changes in credit card use and applications, payment patterns, credit fraud, and default rates may also result from a variety of economic, legal, social, and other factors that we cannot control or predict with certainty. Changes that adversely impact our ability to extend credit and collect payments could negatively affect our results.

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We may be unable to raise additional capital or maintain bank credit on favorable terms, which could adversely affect our business and financial condition.

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We have historically relied on the public debt markets to raise capital to partially fund our operations and growth. We have also historically maintained lines of credit with financial institutions. In January 2023, we upsized and replaced our unsecured credit facility with a $1.5 billion senior secured, asset based revolving credit facility. Changes in the credit and capital markets, including market disruptions, limited liquidity, and interest rate fluctuations may increase the cost of financing or restrict our access to these potential sources of future liquidity. Our continued access to these liquidity sources on favorable terms depends on multiple factors, including our operating performance and credit ratings. During 2024, S&P downgraded our senior unsecured credit rating from BB to BB- and Moody's downgraded our rating from Ba3 to B1. These downgrades have caused our cost of borrowing to increase, and further downgrades would cause our cost of borrowing to further increase. Declines in our credit ratings may also adversely affect our ability to access the debt markets and the terms and our cost of funds for new debt issuances. In addition, multiple further downgrades in our corporate credit rating could trigger less favorable terms under certain commercial arrangements, which could negatively impact our profitability and increase our costs. If our credit ratings were to be further downgraded, or general market conditions were to ascribe higher risk to our credit rating levels, our industry, or our Company, our access to capital and the cost of debt financing may be negatively impacted. Additionally, if unfavorable capital market conditions exist if and when we were to seek additional financing, we may not be able to raise sufficient capital on favorable terms and on a timely basis (if at all). The terms of current and future debt agreements could restrict our business operations or cause future financing to be unavailable due to our covenant restrictions then in effect. Also, if we are unable to comply with the covenants under our revolving credit facility, the lenders under that agreement will have the right to terminate their commitments thereunder and declare the outstanding loans thereunder to be immediately due and payable. A default under our revolving credit facility could trigger a cross-default, acceleration, or other consequences under other indebtedness or financial instruments to which we are a party. If our access to capital were to become significantly constrained or our cost of capital were to increase significantly our financial condition, results of operations, and cash flows could be adversely affected.

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Cost Associated with Exit or Disposal Activities

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On June 5, 2025, as part of our ongoing effort to increase efficiency and support the health and future of our business, we announced the closing of our Monroe, Ohio e-fulfillment center ("EFC"). The Monroe EFC is one of 14 EFCs and Distribution Centers in our nationwide supply chain network. In recent years, we have increased efficiencies with advanced technology capabilities at newer EFC facilities and expanded our ability to fulfill customer orders from store locations, allowing us to continue fulfilling customer orders without the Monroe, OH EFC.

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We estimate that we will recognize cumulative pre-tax charges of approximately $25 million to $30 million, including approximately $10 million of non-cash charges in real estate and other asset-related charges, costs, and impairments and $15 million to $20 million of cash expenditures related to associate severance, benefits, and other exit costs. We expect that substantially all of these charges will be incurred in the second and third quarters of 2025.

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The estimated charges and the timing of such charges are based on certain assumptions and actual amounts may vary from such estimates based on a number of factors, including, but not limited to, the number of associates impacted by these activities. We may incur other charges or cash expenditures not currently contemplated due to unanticipated events that may occur as a result of or in connection with the implementation of the activity described herein. The impact of these charges has been excluded from our full year 2025 Financial and Capital Allocation Outlook provided in Item 2, and we intend to exclude these charges from our non-GAAP financial measures. We believe excluding these charges from our non-GAAP financial measures is useful, as it provides enhanced visibility into our results excluding these charges and allows investors to compare the operating performance of our core business consistently over various periods.