Kohl’s executives anticipate that Sephora at Kohl’s will face ongoing sales declines for the remainder of the year, as the beauty shop-in-shops reported a second straight quarter of decreased sales. This comes during a period when the parent company’s total revenue slipped slightly, but progress was evident in Kohl’s turnaround strategy.
Overall Recovery Amid Drop in Beauty Shop-in-Shop Revenue
Kohl’s second-quarter financial results released on Wednesday revealed a net sales decrease of less than 1% year-over-year, reaching $3.3 billion, with comparable sales also falling by just under 1%. In contrast, sales for Sephora at Kohl’s dropped 4%, extending the negative trend from Q1 when these shop-in-shops also saw declines. Fitch Ratings previously estimated that Sephora at Kohl’s accounted for close to 10% of overall sales, but recent data implies the segment may now be weighing down Kohl’s topline performance.
While prestige and mass-market beauty segments are enjoying robust momentum across the industry—Circana research cited by Retail Dive shows both grew 7% in the first half of the year, with prestige beauty surpassing $17 billion and mass-market climbing above $39 billion—the positive retail trends are not as pronounced within Kohl’s, where results vary by category.
Gross Margin Expansion and Updated Full-Year Guidance
For the quarter, Kohl’s posted a 305 basis point improvement in gross margin to 43%, a boost driven in part by roughly $150 million in tariff refunds. The company intends to use these funds for inventory reduction, paying vendors, and implementing targeted price reductions. Despite experiencing a modest drop in sales, the quarter ended with net income down just over 1% at $151 million. These strong margins and efficiency measures have led Kohl’s to upgrade its guidance for the rest of the fiscal year.
Revised expectations now call for net sales and comparable sales to remain flat or decrease by up to 1.5% versus 2025, narrowing the forecast from earlier guidance which projected results as flat to down 2%. Additionally, the company lifted its adjusted operating margin outlook to between 3.5% and 4%, from the previous range of 2.8% to 3.4%.
Growth in Private Label, Shifts in Beauty Category Performance
According to GlobalData, this marks Kohl’s 18th consecutive quarter with declining comparable sales, but the latest decline is the most modest since the third quarter of 2021. Private label brands posted encouraging results, achieving 3% comparable sales growth for the period.
CEO Michael Bender told analysts on Wednesday that the dip at Sephora at Kohl’s stems from a lack of product “newness” in the beauty space. Bender pointed out that while fragrance, hair care, and makeup maintained strength, the skin care segment “had a challenging quarter.” He warned that headwinds—including the rollout time for new brands and adjustments following increased distribution for top labels—will continue to be a factor until fresh selections become fully available in stores.
Holiday Season Initiatives and Sector Outlook
With the crucial holiday period approaching, Kohl’s plans to introduce several new projects in its Sephora shop-in-shops. These plans feature special holiday outposts in 130 stores offering curated gift sets and launching new fragrance towers in 250 locations starting in November.
Despite current struggles, many in the industry remain positive about the collaboration. David Silverman, Senior Director at Fitch Ratings, stated that the strong fundamentals of the beauty category and the Sephora partnership position it as a lasting growth engine for Kohl’s comparable sales into the future.