Kohl's Q3 Earnings Reveal Ongoing Turnaround Hurdles Amid Scrutiny of Key Metrics

What happened

Kohl's reported Q3 earnings for the quarter ended October 2025, with the article highlighting the need to compare key metrics against Wall Street estimates and year-ago figures. The DeepValue master report indicates the company's turnaround relies on Sephora shop-in-shops, owned brand revamps, and returns aggregation, but comparable sales have remained negative, such as the -4.2% in Q2 FY2025. Despite these efforts, elevated leverage at a net debt to EBITDA of 5.97x and thin interest coverage of 1.85x continue to constrain financial health. Leadership instability, with an interim CEO after a recent termination, adds execution risk to achieving comp inflection and cost savings. Overall, the earnings update underscores that Kohl's has not yet proven its strategies can sustainably reverse declining traffic and margins.

Implication

The Q3 earnings focus on key metrics suggests no material progress in reversing negative comps, which are critical for validating the Sephora-led turnaround. High leverage and low interest coverage limit downside protection, increasing vulnerability to further discretionary demand softness. Leadership instability could hinder execution of cost-saving initiatives and partnership rollouts, delaying any potential recovery. Positive free cash flow offers a minor buffer, but it's insufficient to offset the risks without sustained comp growth. Investors must monitor for two consecutive quarters of flat-to-positive comps and leverage reduction to near 4x before considering an upgrade to buy.

Thesis delta

The Q3 earnings report does not alter the HOLD thesis, as it likely reinforces the absence of comp inflection and leverage improvement highlighted in the DeepValue report. No shift is warranted until Kohl's demonstrates tangible progress on its watch items, such as stabilized leadership and consecutive positive comps.