Observed Signal · May 28, 2026 · Earnings Report · Source: Retail Dive · Impact: 4/5 · Sentiment: Neutral
Sephora Dragged Kohl’s Q1 Performance
Kohl’s reported modest improvement in Q1 fiscal 2026 but faced a surprise weakness at its Sephora shop‑in‑shops, where sales fell low single digits year-over-year. Kohl’s disclosed Q1 net sales declined 1.7% with comps down 1.1%; gross margin edged up 4 basis points and the company recorded a $14 million net loss, a $1 million improvement from 2025. Executives reiterated full-year guidance calling for net sales and comps to be down about 2% to flat. Analysts and industry researchers noted progress on assortment and expense control, but warned the Sephora softness may signal limits to Kohl’s recovery given the beauty format’s prior contribution to traffic and sales.
Kohl’s Q1 financial results and outlook affect retailer performance, merchandising strategy and demand for retail advertising/marketing spend; earnings reports from major retailers can influence retail media and brand investment decisions.
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Key Takeaways & Evidence Grounding
- Sephora shop-in-shop sales at Kohl’s were down low single digits year-over-year in Q1.
- Kohl’s reported Q1 net sales fell 1.7% and comparable sales (comps) declined 1.1%.
- Gross margin expanded by 4 basis points in Q1 and Kohl’s reported a $14 million net loss (a $1 million improvement vs. 2025).
- Kohl’s reaffirmed guidance expecting net sales and comps to be between a 2% decline and flat for the year.
Connected Companies & Entities
2 Entities mappedRelated Market Signals & Shifts
Recent verified developments and strategic activity across this market segment.
Sephora Decline Pressures Kohl's Q2 Sales
Kohl’s reported Q2 fiscal 2026 results showing net sales of $3.3 billion, down less than 1% year-over-year, while Sephora shop-in-shop sales at Kohl’s fell 4% for a second consecutive quarter. Gross margin expanded 305 basis points to 43%, aided by about $150 million in tariff refunds; net income was $151 million (down just over 1%). Kohl’s raised its full-year guidance to expect net and comparable sales to be flat to down as much as 1.5% (previously flat to down 2%), and expects adjusted operating margin of 3.5%–4.0%. Kohl’s CEO Michael Bender attributed the Sephora softness to a lack of fresh SKUs and category weakness in skincare. Fitch Ratings and other research firms note Sephora at Kohl’s had contributed roughly 10% of Kohl’s topline, and Kohl’s and Sephora plan assortment and merchandising expansions for the holiday season.
Kohl's expands Babies R Us shops as Sephora sales dip
Kohl's is expanding its partnership with Babies R Us, adding shop-in-shops to 56 more stores and introducing an exclusive collection of baby essentials. The move comes as Sephora at Kohl's, previously a key traffic driver, experiences declining sales, down 4% in Q2 after a low-single-digit drop in Q1. The expansion includes new categories like gifting options under $25, Millie Moon diapers, and Hallmark gift sets. This strategic shift highlights Kohl's efforts to diversify its offerings and boost in-store traffic, which has been challenged but is showing signs of recovery.
Ulta Emphasizes Exclusives Amid Target Rivalry
Ulta Beauty reported strong fiscal Q2 results and raised its full-year guidance while downplaying competitive pressure from Target’s new Beauty Studio. Q2 net sales rose nearly 9% year-over-year to $3.0 billion, with comparable-store sales up 3.8%. Ulta now expects full-year net sales growth of 6.7%–7.2% and comps of 3.2%–3.7%, up from prior guidance. CEO Kecia Steelman said the company will focus on differentiation, including exclusive merchandise, and remain willing to use promotions as needed. Makeup comps were nearly flat as prestige growth offset weaker mass makeup; fragrance and hair care grew. Analysts from William Blair, TD Cowen and Jefferies noted the beat but flagged tougher comparisons and competitive intensity in the back half of the year.
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