Quick Facts
- Sephora at Kohl’s sales fell 4% in Q2 2026, the second consecutive quarterly decline, with weakness expected to persist through year-end.
- Kohl’s is adding Babies R Us shop-in-shops to 56 more stores, with the largest expansions in California (25 stores) and Texas (20 stores).
- Kohl’s raised its full-year outlook after receiving roughly $150 million in tariff refunds, now forecasting comparable sales between down 1.5% and flat.
Kohl’s is doubling down on Babies R Us as its once-celebrated Sephora partnership loses momentum. The retailer announced this month it will add Babies R Us shop-in-shops to 56 more stores, expanding an arrangement that first launched in 2024 across about 200 locations.
The move comes as Sephora at Kohl’s posted a 4% sales decline in Q2 2026, following a low-single-digit drop in Q1. Kohl’s management said the softness will continue for the rest of the year as the company works to scale newer brands and cycle through pressure from expanded distribution of larger beauty labels.
“Our Sephora at Kohl’s business faced headwinds this quarter with sales down 4%,” said Kohl’s executive Bender. Management added that performance is expected to remain soft “until we can reach full scale with new brands and cycle through the headwinds from expanded distribution from a few of the bigger brands.”
The contrast with the broader market is stark. U.S. prestige beauty sales rose 7% in the first half of the year, topping $17 billion, while mass retail beauty also grew 7%. Kohl’s decline appears specific to its own execution rather than category weakness.
At its peak in 2023, Sephora at Kohl’s generated more than $1.4 billion in sales across more than 900 stores. In 2025, the accessories category, which includes Sephora, accounted for $3.1 billion in net sales, or 21.1% of company revenue, up from 8.9% in 2019.
Babies R Us sections range from 700 to 2,500 square feet and carry brands including Baby Bjorn, Burt’s Bees, Graco, and Fisher-Price. Baby gear, including car seats and strollers, is the top-performing category, followed by baby furniture.
New products coming this fall include Millie Moon diapers, Hallmark gift sets, and seasonal stroller toys and books. Kohl’s is also launching an exclusive collection of bibs, blankets, and crib sheets, and will expand its selection of gifting items priced under $25.
CEO Tom Kingsbury framed the baby category as a growth opportunity. “We are partnering with Babies R Us to meaningfully expand our presence in the baby category, which is a compelling whitespace opportunity for Kohl’s,” he said. Kohl’s also serves as the exclusive retailer for the Babies R Us online gift registry.
On the financial side, Kohl’s reported Q2 comparable sales down 0.9%, an improvement from prior trends, with net income of $151 million, or $1.28 per diluted share. Full-year 2025 net sales fell 4% to $14.78 billion. The company ended Q2 with $821 million in cash and no borrowings under its credit facility.
David Silverman, senior director at Fitch Ratings, pointed to “well-controlled expenses and inventory” as signs of “measured progress” at the retailer.
The California and Texas expansions reflect where Kohl’s sees the most upside for the baby category. Whether the Babies R Us bet can offset continued pressure from Sephora will be a key test heading into the holiday season.
