KOHLS Corp

1. Basis of Presentation

The accompanying Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for fiscal year end Consolidated Financial Statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. For further information, refer to the Consolidated Financial Statements and related footnotes included in our Annual Report on Form 10-K for the fiscal year ended February 1, 2025 (Commission File No. 1-11084) as filed with the Securities and Exchange Commission ("SEC"). Certain amounts in the Consolidated Financial Statements and related footnotes may not foot or crossfoot due to rounding.

Due to the seasonality of the business of Kohl’s Corporation (the “Company,” “Kohl’s,” “we,” “our,” or “us”), results for any quarter are not necessarily indicative of the results that may be achieved for a full fiscal year.

Reportable Segments

We are an omnichannel retailer that operates as asingle reportable segment. Our Chief Operating Decision Maker (“CODM”) is our Chief Executive Officer. The net income presented in the Consolidated Statements of Operations is the financial information reviewed by the CODM. The CODM assesses the performance of the Company and decides how to allocate resources using net income that is reported on the Consolidated Statement of Operations. Net income is used to monitor budget versus actual results. The CODM regularly reviews information consistent with the Consolidated Statements of Operations.

Supplier Finance Programs

The Company has an agreement with a third-party financing provider to facilitate a supplier financing program. The program provides participating suppliers the option to receive outstanding payment obligations of the Company early at a discount. The Company’s obligations to its suppliers, including amounts due and scheduled payment terms, are not impacted by suppliers’ decisions to finance amounts under the program. All amounts payable to the financial institution relating to suppliers participating in the program are recorded in Accounts Payable in the Consolidated Balance Sheets and were $226 million as of August 2, 2025 and $97 million as of February 1, 2025.

Restructuring Reserve

We recognized $11 million of Impairments, store closing, and other costs in the second quarter. Included in this amount was $11 million of non-cash charges related to asset impairments, $7 million of severance, and $4 million of other costs primarily related to the closure of our Monroe, Ohio E-commerce Fulfillment Center. We also reversed $11 million of other exit costs initially recognized in the fourth quarter of 2024, related to the closure of our San Bernardino, California E-commerce Fulfillment Center and 27 underperforming stores due to favorable landlord negotiations.

The following table summarizes the changes in the restructuring reserve related to the closure of our Monroe, Ohio E-commerce Fulfillment Center, for the six months ended August 2, 2025:

The following table summarizes the changes in the restructuring reserve established in the fourth quarter of 2024, related to the closure of our San Bernardino E-commerce Fulfillment Center and 27 underperforming stores, for the six months ended August 2, 2025:

Charges related to corporate restructuring efforts are recorded in Impairments, store closing, and other costs in the Consolidated Statements of Operations.

Interchange Fee Settlement

During the second quarter of 2025, we entered into a settlement agreement to resolve a credit card interchange fee lawsuit in which we were a plaintiff. As a result of this lump-sum settlement, we recognized a gain of $129 million, net of legal fees, in (Gain) on legal settlement in the Consolidated Statements of Operations.

Recent Accounting Pronouncements

Accounting Standards Issued but not yet Effective

In 2023, the Financial Accounting Standards Board ("FASB") issued ASU No. 2023-09, Income Taxes (Topic 740) - Improvement to Income Tax Disclosures (“ASU 2023-09”), which establishes new income tax disclosure requirements in addition to modifying and eliminating certain existing requirements. ASU 2023-09 requires entities to consistently categorize and provide greater disaggregation of information within the income tax reconciliation to enable users of financial statements to understand the nature and magnitude of factors contributing to the difference between the effective and statutory tax rates. For public entities, the provisions within ASU 2023-09 are effective for fiscal years beginning after December 15, 2024, and for interim periods of fiscal years beginning after December 15, 2025. We are currently finalizing our assessment of the impact ASU 2023-09 will have on our consolidated financial statement disclosures and will include within our upcoming 2025 Form 10-K.

In 2024, the FASB issued ASU No. 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses (“ASU 2024-03”), which requires disaggregation of certain expense captions into specified categories in disclosures within the footnotes to the financial statements. For public entities, the provisions within ASU 2024-03 are effective for the first annual reporting period beginning after December 15, 2026, and for interim reporting periods within annual reporting periods beginning after December 15, 2027. The provisions within ASU 2024-03 are required to be applied prospectively; however, they may be applied retrospectively for all comparative periods following the effective date. We are currently assessing the impact the adoption of ASU 2024-03 will have on our consolidated financial statement disclosures.

2. Revenue Recognition

The following table summarizes net sales by line of business:

Unredeemed gift cards and merchandise return card liabilities totaled $242 million as of August 2, 2025, $308 million as of February 1, 2025, and $270 million as of August 3, 2024. In the second quarter of 2025 and 2024, net sales of $28 million and $31 million, respectively, were recognized from gift cards redeemed in the current period and issued in prior years. Year to date 2025 and 2024, net sales of $82 million and $88 million, respectively, were recognized from gift cards redeemed during the current year and issued in prior years.

3. Debt

Outstanding borrowings under the $1.5 billion revolving credit facility, recorded as short-term debt, were $75 million as of August 2, 2025, $290 million as of February 1, 2025, and $410 million as of August 3, 2024.

Long-term debt, which excludes borrowings on the revolving credit facility, consists of the following secured and unsecured debt:

Our estimated fair value of secured and unsecured senior long-term debt is determined using Level 1 inputs, using financial instruments with unadjusted, quoted prices listed on active market exchanges. The estimated fair value of our secured and unsecured senior debt was $1.1 billion at August 2, 2025, $1.2 billion at February 1, 2025, and $1.2 billion at August 3, 2024.

In December 2024, S&P downgraded our senior unsecured credit rating from BB to BB- and Moody’s downgraded our rating from Ba3 to B1. As a result of the downgrades, the interest rate on our 3.375% notes due May 2031 increased an additional 50 basis points in May 2025 due to the coupon adjustment provision within the notes. During the second quarter 2025, Moody's downgraded our senior unsecured credit rating from B1 to B3, however, further downgrades by Moody's do not trigger incremental interest rate increases. In total, the interest rate on the notes due May 2031 have increased 175 basis points since their issuance.

In May 2025, we issued $360 million aggregate principal amount of 10.000% senior secured notes due 2030 and received proceeds of $357 million, net of the debt discount. The notes are guaranteed by certain of our subsidiaries. Certain of these guarantees are secured by eleven distribution centers and E-commerce Fulfillment Centers, which are held by our subsidiaries, as well as the equity interests in one of our subsidiaries. The terms of the notes contain covenants that limit Kohl’s ability to grant or incur liens on the collateral; incur, assume or guarantee additional indebtedness; sell or otherwise dispose of assets that are collateral; and make certain restricted payments. Additionally, upon the occurrence of certain change of control repurchase events, we would be required to offer to repurchase the notes for at least 101% of the aggregate principal amount of the notes being repurchased, plus all accrued but unpaid interest as of the date of repurchase. Further, the terms of the notes set forth certain events of default after which the notes may be declared immediately due and payable and set forth certain types of bankruptcy or insolvency events of default.

In July 2025, $353 million in aggregate principal amount of our 4.25% notes matured and were repaid.

In the second quarter of 2024, we completed a voluntary redemption of the remaining $113 million outstanding 9.50% notes due May 15, 2025.

Our various debt agreements contain covenants including limitations on additional indebtedness and certain financial tests. As of August 2, 2025, we were in compliance with all covenants of the various debt agreements.

4. Leases

We lease certain property and equipment used in our operations. Some of our store leases include additional rental payments based on a percentage of sales over contractual levels or payments that are adjusted periodically for inflation. Our typical store lease has an initial term of 20 to 25 years andfour toeight five-year renewal options.

Lease assets represent our right to use an underlying asset for the lease term. Lease assets are recognized at commencement date based on the value of the lease liability and are adjusted for any lease payments made to the lessor at or before commencement date, minus any lease incentives received and any initial direct costs incurred by the lessee.

Lease liabilities represent our contractual obligation to make lease payments and include renewal options that are reasonably assured of being exercised. At the commencement date, the lease liabilities equal the present value of minimum lease payments over the accounting lease term. As the implicit interest rate is not readily identifiable in our leases, we estimate our collateralized incremental borrowing rate to calculate the present value of lease payments.

Leases with a term of 12 months or less are excluded from the balance; we recognize lease expense for these leases on a straight-line basis over the lease term. We combine lease and non-lease components for new and modified leases.

The following tables summarize our operating and finance leases, which are predominately store related, and where they are presented in our Consolidated Financial Statements:

The following table summarizes future lease payments by fiscal year:

Total lease payments include $3.7 billion related to options to extend operating lease terms that are reasonably certain of being exercised and $2.7 billion related to options to extend finance lease terms that are reasonably certain of being exercised. Additionally, total lease payments exclude $9 million of legally binding lease payments for leases signed but not yet commenced.

The following table summarizes weighted-average remaining lease term, weighted-average remaining contractually obligated lease term, and discount rate:

The remaining contractually obligated term represents only the remaining noncancelable portion of the leases.

Other lease information is as follows:

Financing Obligations

Historical failed sale-leasebacks that did not qualify for sale-leaseback accounting upon adoption of ASC 842 continue to be accounted for as financing obligations.

The following tables summarize our financing obligations, which are all store related, and where they are presented in our Consolidated Financial Statements:

The following table summarizes future financing obligation payments by fiscal year:

Total financing obligation payments include $1.1 billion related to options to extend terms that are reasonably certain of being exercised.

The following table summarizes the weighted-average remaining term, weighted-average remaining contractually obligated term, and discount rate for financing obligations:

The remaining contractually obligated term represents only the remaining noncancelable portion of the financing obligations.

5. Share-Based Awards

The following table summarizes our share-based awards activity for thesix months ended August 2, 2025:

In 2019, we issued 1,747,441 stock warrants. All 1,747,441 warrants were vested and unexercised as of August 2, 2025, February 1, 2025, and August 3, 2024. The warrants will expire on April 18, 2026.

6. Contingencies

We are subject to certain legal proceedings and claims arising out of the ordinary conduct of our business. In the opinion of management, the outcome of these proceedings and claims will not have a material adverse effect on our Consolidated Financial Statements.

7. Income Taxes

The effective tax rate for the second quarter of 2025 was 23.8% compared to 17.8% for the second quarter of 2024. Year to date, the tax rate was 25.0% and 3.4% for 2025 and 2024, respectively. The 2024 tax rates reflect the recognition of net favorable tax items, which decreased the tax rate from the statutory rate.

On July 4, 2025, the One Big Beautiful Bill Act (the "Act") was enacted and signed into law. The Act restores and makes permanent a number of corporate tax provisions, such as full expensing for US-based research and development expenditures and capital investments, as well as the calculation of the business interest expense limitation. The Company has evaluated the provisions of the Act and determined that while the legislation impacts the timing of certain tax deductions, it does not result in a material change to Kohl's effective tax rate.

8. Net Income Per Share

Basic net income per share is net income divided by the average number of common shares outstanding during the period. Diluted net income per share includes incremental shares assumed for share-based awards and stock warrants. The potentially dilutive shares outstanding during the period include unvested restricted stock units, unvested restricted stock awards, and warrants, which utilize the treasury stock method, as well as unvested performance share units that utilize the contingently issuable share method. Potentially dilutive shares are excluded from the computations of diluted earnings per share if their effect would be anti-dilutive.

The information required to compute basic and diluted net income per share is as follows:

The following potential shares of common stock were excluded from the diluted net income per share calculation because their effect would have been anti-dilutive:

9. Subsequent Events

On August 12, 2025, the Board of Directors of Kohl's Corporation declared a quarterly cash dividend of $0.125 per share. The dividend will be paid on September 24, 2025, to all shareholders of record at the close of business on September 10, 2025.