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Kohl's (KSS +17%) is surging today after reporting its Q2 (Jul) results this morning. This omnichannel retailer beat handily on EPS estimates, delivering its largest EPS beat in 5 quarters. While revenue declined 5% yr/yr, the drop was in line with expectations. Heading into the report, KSS had been under pressure, trending lower since early 2024 and hitting multi-year lows after its Q4 (Jan) results, before climbing higher following its Q1 (Apr) report in May. The outsized move today reflects growing investor optimism that the company's strategic initiatives are beginning to take hold.

• Kohl's initiatives center on three key priorities, all rooted in putting the customer first. First, the company is offering a more balanced assortment that better meets customer needs. Second, it is working to reestablish the brand as a leader in value and quality. Finally, Kohl's is enhancing the shopping experience across its omnichannel platform. The emphasis on value is particularly relevant in today's environment, as highlighted by recent reports from TJX (TJX) and Ross Stores (ROST).
• KSS noted that consumers remain pressured and increasingly selective with their purchases. Specifically, its lower to middle income customers are the most challenged, prioritizing value and trading down to lower priced products. In response, KSS has invested more in its proprietary brands and expanded the number of coupon-eligible offerings.
• As a result, its proprietary brands had sales increase 500 bps sequentially, with comp sales of -3%. This fall, KSS plans to expand its Flex brand into the kids' category, one of its softest categories in Q2. Additionally, broader coupon eligibility drove an 800-bps yr/yr increase in coupon-related sales penetration.
• In total, comp sales were -4.2% in the quarter, driven by fewer transactions, particularly in stores. Importantly, KSS did see traffic improve in both of its channels throughout the quarter with positive traffic in July. Its gross margin expanded 28 bps yr/yr to 39.9%, driven by category mix benefits and inventory management, reflecting the impact of its investments in proprietary brands.
• Another positive was the company's full-year guidance. It narrowed its expected sales decline to 5-6% from 5-7% and comp sales to -4-5% from -4-6%. We compute revenue as $14.46-14.62 bln. Also, it raised its full year EPS guidance pretty significantly to $0.50-0.80 from $0.10-0.60.

Overall, this was a strong quarter for Kohl's after a period of challenges. Its substantial EPS beat and narrowed full-year guidance reflect that its strategic initiatives are gaining traction, adding to investor optimism. With improvement in its proprietary brands, coupon penetration, and traffic trends, the company appears well-position to continue its turnaround momentum.