Investing.com -- Moody’s Ratings has downgraded the ratings of Kohl’s Corporation (NYSE: KSS ), including its corporate family rating (CFR) to B2 from Ba3. The probability of default rating (PDR) and senior unsecured notes ratings were also downgraded to B2-PD and B3 from Ba3-PD and B1, respectively. However, Moody’s has assigned a Ba3 rating to Kohl’s proposed senior secured first lien notes. The speculative grade liquidity rating (SGL) remains unchanged at SGL-3, and the outlook has shifted to stable from negative.

The downgrade is due to Moody’s anticipation of a weakened operating performance for Kohl’s in the latter half of 2025. This is attributed to increased pressures on the company’s core value-oriented consumer and the challenges Kohl’s faces as it seeks a permanent CEO in a difficult consumer discretionary spending environment, according to Mickey Chadha, Vice President of Moody’s Ratings.

The revenue from the proposed senior secured first lien notes will be used to repay borrowings on the asset-based revolving facility (ABL). Following this, Kohl’s will have no near-term debt maturities. The company’s overall liquidity is expected to be sufficient, with positive but highly seasonal annual free cash flow and good availability on the $1.5 billion ABL.

The Ba3 rating assigned to the new notes is reflective of their first-priority lien on Kohl’s distribution and e-commerce fulfillment centers, providing good asset coverage for the notes. These notes will be guaranteed on an unsecured basis by the issuer and its material wholly-owned domestic operating subsidiaries.

Despite a decline in sales in 2024, Kohl’s B2 CFR benefits from the company’s significant market position and scale, with approximately $16.2 billion of revenue for fiscal year 2024. However, the company has faced challenges with profitability and sales in certain merchandise categories. While the first quarter of 2025 saw better than expected performance, comparable sales continue to decline. Moody’s expects weaker demand in the second half of 2025 due to high cost essentials and potentially higher prices due to changing tariffs.

Despite these pressures, Moody’s expects Kohl’s to maintain adequate liquidity and continue to pursue a balanced financial strategy, with share purchases delayed until cash balances and credit metrics return to historical levels. The ratings could be upgraded or downgraded based on several factors, including significant and sustainable improvements in operating margins, consistent comparable sales growth, and the maintenance of good liquidity.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.