Kohl's misses sales estimates on cautious discretionary spending

Aug. 26 (Reuters) - Kohl's missed Wall Street estimates for second-quarter sales on Wednesday, as muted consumer spending on discretionary items offset gains from the department chain's turnaround push, sending its shares down about 5% before the bell.

U.S. consumer sentiment deteriorated in August and retail sales fell for the first time in nine months in July, underscoring an increasingly "selective" shopping trend among middle- and lower-income households in the face of stubborn inflation, even as wealthier shoppers remain resilient.

This cautious consumer behavior when spending on nice-to-have items, including apparel and home goods, has been weighing on businesses, from high-end store owners such as Kohl's to off-price retailers like TJX.

Kohl's has also been contending with stiff competition from off-price retailers such as Ross Stores and e-commerce giant Amazon.com, which have managed to attract bargain-hungry customers.

The company's quarterly revenue fell 0.9% to $3.32 billion from a year ago, compared with analysts' estimates of about a 0.1% decline to $3.35 billion, according to data compiled by LSEG.

It, however, raised its annual profit forecast after benefiting from $150 million tariff refunds received during the reported quarter, and also said it will resume its about $100 million share repurchase program this year.

The mid-tier retailer has been in the midst of a long-running turnaround aimed at reviving demand and lifting margins.

Quarterly gross margin of Kohl's grew 305 basis points from last year to 43%, helped by tariff refunds. Kohl's has also been targeting value-conscious shoppers by investing in its proprietary brands and adding more coupon-eligible labels, among other measures.

The company expects fiscal 2026 adjusted earnings of $1.80 to $2.40 per share, above its prior forecast of $1.00 to $1.60.