Kohl’s spent $150 million less on merchandise over the first six months of fiscal 2026. Sales still fell $80 million, and the company’s operating income declined to $261 million from $279 million.
That is the filing’s central wrinkle: Kohl’s kept more of each sales dollar at the merchandise level, but the improvement did not reach operating profit. Gross margin rose to 41.5% from 39.9%, while operating margin slipped to 7.4% from 7.9%.
The company’s own table puts the change plainly:
"Gross margin as a percent of net sales 43.0% 39.9% 305 bps 41.5% 39.9% 162 bps"
10-Q 2026-09-03
The six-month comparison shows a $70 million increase in gross margin despite the small sales decline. Kohl’s does not identify, in the supplied disclosures, why that improvement failed to produce higher operating income.
One disclosed contributor was tariffs. Kohl’s said the increase in cash from operating activities was helped by refunds, although vendor repayments and customer investments offset part of it:
"The increase was driven by tariff refunds, partially offset by repayments to vendors and investments to drive value for our customers."
10-Q 2026-09-03
The filing gives a concrete boost to the period’s cash picture, but does not quantify how much of the gross-margin improvement came from tariff-related benefits.
Cash ended at $821 million, up from $174 million a year earlier, even as operating cash flow declined 5.5% to $478 million. Capital spending fell 27% to $146 million, and Kohl’s gave a direct explanation:
"The decrease in cash used in investing activities was primarily driven by our reduced capital expenditure plans for fiscal 2026."
10-Q 2026-09-03
So the balance-sheet snapshot improved alongside a smaller investment bill, not stronger operating cash generation. Net interest expense also fell by $28 million, helped by gains on extinguished debt and no outstanding balance on the revolving credit facility. Those items reduced pressure below gross profit, but they do not resolve the operating-income decline.
The broader business has been shrinking for years. Annual revenue fell to $15.5 billion in fiscal 2026, down 4.3% from the prior year, although annual operating margin recovered to 4.0% from 2.7%. The latest six-month report extends both threads at once: merchandise economics improved, while the top line and operating profit did not.
At the latest close, Kohl’s had a $2.2 billion market capitalization, $762.0 million of net debt, and traded at 8.1x earnings.
Kohl’s next quarterly report leaves one factual question on the table: will the company disclose another tariff-related benefit while gross margin and operating income move in the same direction?
Source: Kohl’s 10-Q filed September 3, 2026, for the six months ended August 1, 2026.