Q3 sales increased 16% to last year, and our operating margin was a nine-year high of 8.4%, benefiting from our actions to structurally improve our profitability.
And we launched several new transformational brand partnerships across the business including the rollout of the first 200 Sephora at Kohl's stores.
And third, we are accelerating our share repurchase activity, reinforcing our commitment to driving shareholder value, and now expect to repurchase $1.3 billion for the year.
We see a lot of value in our company and believe repurchases are a great mechanism to return capital to shareholders, given our promising outlook and formidable cash position of $1.9 billion.
Our 16% sales increase was the result of strong performance across both stores and digital.
Digital sales remained strong in the quarter, growing 6% to last year and increasing 33% on a two-year basis.
As a percentage of total sales, digital was 29% in the quarter.
Active sales significantly outpaced the company, growing more than 25% to last year and more than 20% on a two-year basis.
Active is now one of our largest areas of business, representing 26% of our Q3 sales, and we remain confident in our ability to maintain our growth momentum.
Some of our other highlights in the quarter include men's sales increasing more than 30% to last year and footwear and accessories both up more than 20%, and children's up low double digits, driven in part by strong demand for toys.
For our private brands, these included Sonoma, SO, Apartment 9, and Jumping Beans.
We are thrilled with the early response we are seeing from our initial opening of 200 Sephora at Kohl's shops.
More than 25% of Sephora at Kohl's shoppers are new to Kohl's.
Planning is underway for the additional 400 Sephora at Kohl's openings beginning in late spring 2022.
In addition, we will open 250 in 2023.
As we rolled out this updated experience to our first 200 stores, the customer feedback has been extremely positive.
We introduced Calvin Klein basics and loungewear in 600 stores in mid-September.
And added Tommy Hilfiger men's sportswear in 600 stores in early October.
And in late October, we began offering Eddie Bauer in 500 stores, expanding our presence in the outdoor category and building on our investments and momentum with Columbia and Lands' End.
The most visible evidence of this can be seen in our inventory level at the end of Q3, down 25% on a two-year basis.
Over the past 12 to 18 months, we have executed a major transformation of the Kohl's operating model, repositioning the business for sustainable future growth and improved profitability.
For the third quarter, net sales increased 16% to last year and were slightly ahead of 2019, driven by growth in both our stores and digital businesses.
Other revenue, which is primarily credit revenue, increased 17% over last year.
Q3 gross margin was 39.9%, up 408 basis points from last year driven by our inventory management efforts and our pricing and promotion optimization strategies, offset partially by incremental transportation costs related to the constrained global supply chain.
In Q3, SG&A expenses increased 6% to $1.4 billion driven by the double-digit to top-line growth.
As a percentage of revenue, SG&A expenses leveraged by 273 basis points to last year as we continue to deliver against our efforts to drive marketing and technology efficiency.
Our strong margin and SG&A performance translated into an 8.4% operating margin.
This was a nine-year high for the third quarter and represented an increase of 734 basis points to last year and an increase of 403 basis points to 2019.
Interest expense was $12 million lower than last year due to lower average debt outstanding during the quarter.
Net income for the quarter was $243 million, and earnings per diluted share was a Q3 record of $1.65.
In late October, we made our final move to return our balance sheet to its pre-pandemic structure by migrating back to a $1 billion unsecured cash flow-based revolving credit facility.
We ended the quarter with $1.9 billion of cash and cash equivalents and no outstanding balance on our revolver.
Inventory at quarter end was 1% higher than the prior year and down 25% to 2019.
Year to date, we have generated operating cash flow of $1.8 billion and free cash flow of $1.3 billion.
Capital expenditures were $426 million year to date, driven by in-store investments related to the Sephora build-out, refreshes and other customer experience and sales-driving enhancements as well as a new e-commerce fulfillment center opened earlier this year.
Based on our current outlook, we now expect capex spend to come at the high end of our $600 million to $650 million range.
During the third quarter, we accelerated our share repurchase activity, repurchasing more than 10 million shares for $506 million.
Year to date, we have repurchased 15.6 million shares for $807 million.
We plan on continuing our accelerated share repurchase activity with an additional $500 million in Q4, bringing our total for the year to $1.3 billion.
As announced last week, our Board of Directors declared a cash dividend of $0.25 per common share.
Taken together, we have returned a total of $921 million to shareholders through share repurchases and our dividends during the first three quarters of 2021.
Turning to our guidance outlook for 2021.
Based on our strong third quarter performance, we are raising our full year outlook and are guiding as follows: net sales to increase in the mid-20s percentage range, up from our prior expectation of low 20s percentage increase.
Operating margins to be in the range of 8.4% to 8.5%, up from our prior expectation of 7.4% to 7.6%.
This positions us to exceed the high end of our 2023 operating margin goal of 7% to 8%, two years ahead of plan.
And earnings per share to be in the range of $7.10 to $7.30.
For operating margins, our full year 2021 guidance implies a fourth quarter operating margin of approximately 6.6%, which is an increase of 140 basis points, compared to 5.2% last year.
Embedded in our guidance, our incremental headwinds totaling more than 350 basis points as compared to the same period in Q4 2019.
Lastly, as a reminder, for comparison purposes, last year's fourth quarter 2020 earnings per share included $1.15 per share of incremental tax benefit driven by the tax planning strategies.

Summary:
And third, we are accelerating our share repurchase activity, reinforcing our commitment to driving shareholder value, and now expect to repurchase $1.3 billion for the year.
We see a lot of value in our company and believe repurchases are a great mechanism to return capital to shareholders, given our promising outlook and formidable cash position of $1.9 billion.
Net income for the quarter was $243 million, and earnings per diluted share was a Q3 record of $1.65.
We ended the quarter with $1.9 billion of cash and cash equivalents and no outstanding balance on our revolver.
Year to date, we have generated operating cash flow of $1.8 billion and free cash flow of $1.3 billion.
We plan on continuing our accelerated share repurchase activity with an additional $500 million in Q4, bringing our total for the year to $1.3 billion.
Turning to our guidance outlook for 2021.
Based on our strong third quarter performance, we are raising our full year outlook and are guiding as follows: net sales to increase in the mid-20s percentage range, up from our prior expectation of low 20s percentage increase.
And earnings per share to be in the range of $7.10 to $7.30.