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Kohl's Stock Rebound Faces a Showdown With Short Sellers
Written by Thomas Hughes. Published 9/2/2025.
Key Points
- Kohl's is not out of the weeds but is on track to complete a turnaround and return to growth.
- Earnings quality is improving, setting the company up for a leveraged earnings rebound.
- Institutional and analyst trends provide solid support, while short-sellers have ample reason to fear volatility.
Kohl's (NYSE: KSS) appears to have found its bottom, rallying from early April lows. However, risk-averse income investors should brace for continued volatility through year-end. Although the company's turnaround is yielding results and the recently reduced dividend seems sustainable, uncertainties remain—particularly the elevated short interest.
Short interest fell 31% sequentially in early August but remains high at roughly 32% of the float, posing a lingering headwind into Q3 and potentially Q4. Such pressure can amplify price swings, despite operational improvements bolstering the longer-term outlook.
Short Sellers, Analyst Sentiment and Institutional Buying Fuel KSS Volatility
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The Q2 earnings release and updated guidance triggered a sharp rally, partly driven by short-covering. Yet technical analysis points to firm resistance at key levels—levels that correspond to bearish price action in 2024 and the COVID-19 lows of 2020—likely capping near-term gains. The stock could rise further, but it will need another catalyst to clear these barriers and sustain an uptrend.
Institutional buying offers hope for a more durable rally. MarketBeat data shows that although institutions net sold in Q1, they bought at a $2-to-$1 ratio versus sellers in Q2 and the first half of Q3. This matters because institutions hold nearly all outstanding shares; sustained buying could force out short sellers and support a prolonged recovery.
The analysts' reaction to the Q2 results reinforces this bullish view. MarketBeat tracking reveals ten positive revisions—price target increases and upgrades—the first such activity in two quarters. These revisions reversed the downtrend in sentiment, lifting the consensus price target by 25% overnight and helping to establish a bottom in the share price. However, new targets still assume valuations below key resistance levels and may be insufficient to trigger a full-fledged reversal—at least for now.
Kohl's Fundamentals: Weak Revenue Offset by Improved Earnings Quality
Kohl's posted a 5.1% year-over-year revenue decline—lagging peers and 200 basis points below consensus—driven by a 4.2% drop in comparable sales. The weakness partly reflects increased markdowns and promotions aimed at clearing excess inventory. These measures, combined with operational efficiencies, drove a better-than-expected bottom line and generated enough cash flow to maintain the balance sheet and cover the dividend.
The dividend yield stands at about 3.3% as of early September, with a healthy 55% payout ratio post-cut and room for improvement. Balance-sheet metrics include reduced cash and inventory alongside lower debt and liabilities, resulting in a 2.6% increase in shareholders' equity and modest leverage. Long-term debt remains under 0.5x equity and roughly equal to inventory, leaving Kohl's well-positioned to continue its turnaround.
Looking ahead, Kohl's next catalyst is the Q3 earnings report scheduled for late November. Management issued favorable guidance calling for revenue and earnings above consensus, and if turnaround momentum persists, Kohl's could outperform expectations and return to growth before year-end. Encouraging off-price merchandise trends at peers TJX Companies (NYSE: TJX) and Ross Stores (NASDAQ: ROST) further support optimism.
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