10-Q 1 kss-20221029.htm 10-Q 10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

 

☒

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended October 29, 2022

OR

☐

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition period from ________ to _________

 

Commission file number 1-11084

img72451622_0.jpg 

KOHL’S CORPORATION

(Exact name of registrant as specified in its charter)

 

Wisconsin

 

39-1630919

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification No.)

 

 

 

N56 W17000 Ridgewood Drive,

Menomonee Falls, Wisconsin

 

53051

(Address of principal executive offices)

 

(Zip Code)

Registrant’s telephone number, including area code (262) 703-7000

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading

Symbol(s)

Name of each exchange on

which registered

Common Stock, $.01 par value

KSS

New York Stock Exchange

Preferred Stock Purchase Rights

—

New York Stock Exchange

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer

 

☒

 

Accelerated Filer

 

☐

Non-Accelerated Filer

 

☐

 

Smaller Reporting Company

 

☐

 

 

 

 

Emerging Growth Company

 

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by a check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: November 25, 2022 Common Stock, Par Value $0.01 per Share, 110,484,128 shares outstanding.

 

 

 

KOHL’S CORPORATION

INDEX

 

PART I

FINANCIAL INFORMATION

3

Item 1.

Financial Statements:

3

 

Consolidated Balance Sheets

3

 

Consolidated Statements of Operations

4

 

Consolidated Statements of Changes in Shareholders' Equity

5

 

Consolidated Statements of Cash Flows

6

 

Notes to Consolidated Financial Statements

7

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

14

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

21

Item 4.

Controls and Procedures

22

 

 

 

PART II

OTHER INFORMATION

23

Item 1.

Legal Proceedings

23

Item 1A.

Risk Factors

23

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

23

Item 5.

Other Information

23

Item 6.

Exhibits

24

 

Signatures

25

 

 

 

Table of Contents

 

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

KOHL’S CORPORATION

CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

(Dollars in Millions)

October 29, 2022

January 29, 2022

October 30, 2021

Assets

 

 

 

Current assets:

 

 

 

Cash and cash equivalents

$194

$1,587

$1,873

Merchandise inventories

4,874

3,067

3,642

Other

366

369

373

Total current assets

5,434

5,023

5,888

Property and equipment, net

8,117

7,304

7,329

Operating leases

2,318

2,248

2,293

Other assets

365

479

441

Total assets

$16,234

$15,054

$15,951

 

 

 

 

Liabilities and Shareholders’ Equity

 

 

 

Current liabilities:

 

 

 

Accounts payable

$2,014

$1,683

$2,135

Accrued liabilities

1,436

1,340

1,545

Borrowings under revolving credit facility

668

  —

  —

Current portion of:

 

 

 

Long-term debt

164

  —

  —

Finance leases and financing obligations

95

118

117

Operating leases

109

145

142

Total current liabilities

4,486

3,286

3,939

Long-term debt

1,747

1,910

1,909

Finance leases and financing obligations

2,791

2,133

2,072

Operating leases

2,595

2,479

2,537

Deferred income taxes

165

206

196

Other long-term liabilities

354

379

367

Shareholders’ equity:

 

 

 

Common stock

4

4

4

Paid-in capital

3,319

3,375

3,362

Treasury stock, at cost

           (13,551)

           (12,975)

           (12,426)

Retained earnings

14,324

14,257

13,991

Total shareholders’ equity

$4,096

$4,661

$4,931

Total liabilities and shareholders’ equity

$16,234

$15,054

$15,951

 

See accompanying Notes to Consolidated Financial Statements

 

3

Table of Contents

 

KOHL’S CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

 

Three Months Ended

Nine Months Ended

(Dollars in Millions, Except per Share Data)

October 29, 2022

October 30, 2021

October 29, 2022

October 30, 2021

Net sales

$4,052

$4,366

$11,386

$12,251

Other revenue

225

234

693

683

Total revenue

4,277

4,600

12,079

12,934

Cost of merchandise sold

2,541

2,623

7,013

7,282

Operating expenses:

 

 

 

 

Selling, general, and administrative

1,334

1,380

3,910

3,791

Depreciation and amortization

202

210

608

631

Operating income

200

387

548

1,230

Interest expense, net

81

66

226

195

Loss on extinguishment of debt

  —

  —

  —

201

Income before income taxes

119

321

322

834

Provision for income taxes

22

78

68

195

Net income

$97

$243

$254

$639

Net income per share:

 

 

 

 

Basic

$0.82

$1.67

$2.05

$4.24

Diluted

$0.82

$1.65

$2.02

$4.19

 

See accompanying Notes to Consolidated Financial Statements

 

4

Table of Contents

 

KOHL’S CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(Unaudited)

 

 

Three Months Ended

Nine Months Ended

(Dollars in Millions, Except per Share Data)

October 29, 2022

October 30, 2021

October 29, 2022

October 30, 2021

Common stock

 

 

 

 

Balance, beginning of period

$4

$4

$4

$4

Stock-based awards

  —

  —

  —

  —

Balance, end of period

$4

$4

$4

$4

 

 

 

 

 

Paid-in capital

 

 

 

 

Balance, beginning of period

$3,406

$3,349

$3,375

$3,319

Stock-based awards

13

13

44

43

Accelerated share repurchase pending final settlement

        (100)

  —

        (100)

  —

Balance, end of period

$3,319

$3,362

$3,319

$3,362

 

 

 

 

 

Treasury stock

 

 

 

 

Balance, beginning of period

$(13,151)

$(11,920)

$(12,975)

$(11,595)

Treasury stock purchases

        (400)

  (506)

        (558)

  (807)

Stock-based awards

            (1)

            (1)

          (21)

          (26)

Dividends paid

1

1

3

2

Balance, end of period

$(13,551)

$(12,426)

$(13,551)

$(12,426)

 

 

 

 

 

Retained earnings

 

 

 

 

Balance, beginning of period

$14,285

$13,786

$14,257

$13,468

Net income

97

243

254

639

Dividends paid

          (58)

  (38)

        (187)

  (116)

Balance, end of period

$14,324

$13,991

$14,324

$13,991

 

 

 

 

 

Total shareholders' equity, end of period

$4,096

$4,931

$4,096

$4,931

 

 

 

 

 

Common stock

 

 

 

 

Shares, beginning of period

377

377

377

377

Stock-based awards

  —

  —

  —

  —

Shares, end of period

377

377

377

377

Treasury stock

 

 

 

 

Shares, beginning of period

        (249)

        (225)

        (246)

        (219)

Treasury stock purchases

  (11)

  (10)

  (14)

  (16)

Shares, end of period

        (260)

        (235)

        (260)

        (235)

Total shares outstanding, end of period

117

142

117

142

 

 

 

 

 

Dividends paid per common share

$0.50

$0.25

$1.50

$0.75

 

See accompanying Notes to Consolidated Financial Statements

 

5

Table of Contents

 

KOHL’S CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

Nine Months Ended

(Dollars in Millions)

October 29, 2022

October 30, 2021

Operating activities

 

 

Net income

$254

$639

Adjustments to reconcile net income to net cash (used in) provided by operating activities:

 

 

Depreciation and amortization

608

631

Share-based compensation

37

35

Deferred income taxes

                   (41)

                 (103)

Loss on extinguishment of debt

  —

201

Non-cash lease expense

81

107

Other non-cash expense

12

10

Changes in operating assets and liabilities:

 

 

Merchandise inventories

              (1,802)

              (1,044)

Other current and long-term assets

102

574

Accounts payable

331

659

Accrued and other long-term liabilities

76

172

Operating lease liabilities

                   (83)

                 (107)

Net cash (used in) provided by operating activities

                 (425)

1,774

Investing activities

 

 

Acquisition of property and equipment

                 (733)

                 (426)

Proceeds from sale of real estate

31

35

Net cash used in investing activities

                 (702)

                 (391)

Financing activities

 

 

Proceeds from issuance of debt

  —

500

Net borrowings under revolving credit facility

668

  —

Deferred financing costs

  —

  (8)

Treasury stock purchases

                 (658)

                 (807)

Shares withheld for taxes on vested restricted shares

                   (21)

                  (26)

Dividends paid

                 (184)

                 (114)

Reduction of long-term borrowings

  —

  (1,044)

Premium paid on redemption of debt

  —

  (192)

Finance lease and financing obligation payments

  (81)

                  (96)

Proceeds from financing obligations

9

8

Proceeds from stock option exercises

1

1

Other

  —

  (3)

Net cash used in financing activities

                 (266)

              (1,781)

Net decrease in cash and cash equivalents

              (1,393)

                 (398)

Cash and cash equivalents at beginning of period

1,587

2,271

Cash and cash equivalents at end of period

$194

$1,873

Supplemental information

 

 

Interest paid, net of capitalized interest

$190

$167

Income taxes paid

53

221

 

See accompanying Notes to Consolidated Financial Statements

 

6

Table of Contents

 

KOHL’S CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation

The accompanying Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for fiscal year end Consolidated Financial Statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. For further information, refer to the Consolidated Financial Statements and related footnotes included in our Annual Report on Form 10-K for the fiscal year ended January 29, 2022 (Commission File No. 1-11084) as filed with the Securities and Exchange Commission.

Due to the seasonality of the business of Kohl’s Corporation (the “Company,” “Kohl’s,” “we,” “our,” or “us”), results for any quarter are not necessarily indicative of the results that may be achieved for a full fiscal year.

We operate as a single business unit.

Recent Accounting Pronouncements

We do not expect that any recently issued accounting pronouncements will have a material impact on our Consolidated Financial Statements.

2. Revenue Recognition

The following table summarizes net sales by line of business:

 

 

Three Months Ended

Nine Months Ended

(Dollars in Millions)

October 29, 2022

October 30, 2021

October 29, 2022

October 30, 2021

Women's

$1,106

$1,165

$3,422

$3,626

Men's

867

933

2,442

2,562

Home

566

680

1,593

1,923

Children's

599

678

1,424

1,609

Accessories

498

434

1,346

1,205

Footwear

416

476

1,159

1,326

Net Sales

$4,052

$4,366

$11,386

$12,251

 

Unredeemed gift cards and merchandise return card liabilities totaled $285 million as of October 29, 2022, $353 million as of January 29, 2022, and $273 million as of October 30, 2021. In the third quarter of 2022 and 2021, net sales recognized from gift cards redeemed in the current period and issued in prior years totaled $22 million in both periods. Year to date 2022 and 2021, net sales of $135 million and $132 million, respectively, were recognized from gift cards redeemed during the current year and issued in prior years.

3. Debt

Borrowings under the revolving credit facility, recorded as short-term debt, has $668 million outstanding as of October 29, 2022. No amounts were outstanding at January 29, 2022 or October 30, 2021.

 

 

 

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Long-term debt, which excludes borrowings on the revolving credit facility, consists of the following unsecured debt:

 

 

 

 

Outstanding

Maturity (Dollars in Millions)

Effective Rate at Issuance

Coupon Rate

October 29,
2022

January 29,
2022

October 30,
2021

2023

3.25%

3.25%

$164

$164

$164

2023

4.78%

4.75%

111

111

111

2025

9.50%

9.75%

113

113

113

2025

4.25%

4.25%

353

353

353

2029

7.36%

7.25%

42

42

42

2031

3.40%

3.63%

500

500

500

2033

6.05%

6.00%

112

112

112

2037

6.89%

6.88%

101

101

101

2045

5.57%

5.55%

427

427

427

Outstanding unsecured senior debt

 

 

1,923

1,923

1,923

Unamortized debt discounts and deferred financing costs

 

 

           (12)

           (13)

           (14)

Current portion of unsecured senior debt

 

 

         (164)

  —

  —

Long-term unsecured senior debt

 

 

$1,747

$1,910

$1,909

Effective interest rate at issuance

 

 

4.89%

4.89%

4.89%

 

Our unsecured senior long-term debt is classified as Level 1, financial instruments with unadjusted, quoted prices listed on active market exchanges. The estimated fair value of our unsecured senior debt was $1.5 billion at October 29, 2022, $2.0 billion at January 29, 2022, and $2.1 billion at October 30, 2021.

 

In September 2022, Standard & Poor's downgraded our credit rating from BBB- to BB+. As a result of the downgrade, the interest rate on our 3.375% notes and 9.50% notes increased 25 bps due to the coupon adjustment provisions within these notes. Additionally, in September 2022 Moody's placed our credit rating on review for downgrade. As of October 29, 2022, our rating at Moody’s remained under review.

Our various debt agreements contain covenants including limitations on additional indebtedness and certain financial tests. As of October 29, 2022, we were in compliance with all covenants of the various debt agreements.

4. Leases

We lease certain property and equipment used in our operations. Some of our store leases include additional rental payments based on a percentage of sales over contractual levels or payments that are adjusted periodically for inflation. Our typical store lease has an initial term of 20 to 25 years and four to eight five-year renewal options.

Lease assets represent our right to use an underlying asset for the lease term. Lease assets are recognized at commencement date based on the value of the lease liability and are adjusted for any lease payments made to the lessor at or before commencement date, minus any lease incentives received and any initial direct costs incurred by the lessee.

Lease liabilities represent our contractual obligation to make lease payments. At the commencement date, the lease liabilities equal the present value of minimum lease payments over the lease term. As the implicit interest rate is not readily identifiable in our leases, we estimate our collateralized borrowing rate to calculate the present value of lease payments.

Leases with a term of 12 months or less are excluded from the balance; we recognize lease expense for these leases on a straight-line basis over the lease term. We combine lease and non-lease components for new and modified leases.

 

 

 

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Year to date, we opened 399 Sephora shop-in-shops within our Kohl's stores and now have 599 open as of the end of the third quarter. We plan on opening seven additional shop-in-shops in 2022 and at least 250 more shops in 2023. Due to the investments we are making in the shop-in-shops, we reassessed our lease term when construction began as these assets will have significant economic value to us when the lease term becomes exercisable. The impact of these assessments resulted in additional lease term, additional lease assets and liabilities, and, in some cases, changes to the classification.

The following tables summarize our operating and finance leases and where they are presented in our Consolidated Financial Statements:

 

Consolidated Balance Sheets

 

 

 

(Dollars in Millions)

Classification

October 29,
2022

January 29,
2022

October 30,
2021

Assets

 

 

 

 

Operating leases

Operating leases

$2,318

$2,248

$2,293

Finance leases

Property and equipment, net

2,066

1,442

1,389

Total operating and finance leases

4,384

3,690

3,682

Liabilities

 

 

 

 

Current

 

 

 

 

Operating leases

Current portion of operating leases

109

145

142

Finance leases

Current portion of finance leases and financing obligations

78

87

86

Noncurrent

 

 

 

 

Operating leases

Operating leases

2,595

2,479

2,537

Finance leases

Finance leases and financing obligations

2,346

1,688

1,620

Total operating and finance leases

$5,128

$4,399

$4,385

 

Consolidated Statement of Operations

Three Months Ended

Nine Months Ended

(Dollars in Millions)

Classification

October 29, 2022

October 30, 2021

October 29, 2022

October 30, 2021

Operating leases

Selling, general, and administrative

$64

$71

$197

$227

Finance leases

 

 

 

 

 

Amortization of leased assets

Depreciation and amortization

33

27

94

70

Interest on leased assets

Interest expense, net

36

29

104

81

Total operating and finance leases

 

$133

$127

$395

$378

 

Consolidated Statement of Cash Flows

Nine Months Ended

(Dollars in Millions)

October 29, 2022

October 30, 2021

Cash paid for amounts included in the measurement of leased liabilities

 

 

Operating cash flows from operating leases

$200

$236

Operating cash flows from finance leases

99

81

Financing cash flows from finance leases

65

71

 

The following table summarizes future lease payments by fiscal year:

 

 

October 29, 2022

(Dollars in Millions)

Operating Leases

Finance Leases

Total

2022

$62

$40

$102

2023

253

215

468

2024

243

207

450

2025

233

203

436

2026

228

202

430

After 2026

3,735

3,678

7,413

Total lease payments

$4,754

$4,545

$9,299

Amount representing interest

                (2,050)

                (2,121)

                (4,171)

Lease liabilities

$2,704

$2,424

$5,128

 

 

 

 

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The following table summarizes weighted-average remaining lease term and discount rate:

 

 

October 29, 2022

January 29, 2022

Weighted-average remaining term (years)

 

 

   Operating leases

20

20

   Finance leases

21

20

Weighted-average discount rate

 

 

   Operating leases

6%

6%

   Finance leases

6%

7%

 

Other lease information is as follows:

 

 

Nine Months Ended

(Dollars in Millions)

October 29, 2022

October 30, 2021

Property and equipment acquired through exchange of:

 

 

Finance lease liabilities

$714

$755

Operating lease liabilities

167

8

 

Financing Obligations

The following tables summarize our financing obligations and where they are presented in our Consolidated Financial Statements:

 

Consolidated Balance Sheets

 

 

 

(Dollars in Millions)

Classification

October 29,
2022

January 29,
2022

October 30,
2021

Assets

 

 

 

 

   Financing obligations

Property and equipment, net

$50

$55

$57

Liabilities

 

 

 

 

   Current

Current portion of finance leases and financing obligations

17

31

31

   Noncurrent

Finance leases and financing obligations

445

445

452

Total financing obligations

$462

$476

$483

 

Consolidated Statement of Operations

Three Months Ended

Nine Months Ended

(Dollars in Millions)

Classification

October 29, 2022

October 30, 2021

October 29, 2022

October 30, 2021

Amortization of financing obligation assets

Depreciation and amortization

1

2

5

7

Interest on financing obligations

Interest expense, net

16

11

43

30

Total financing obligations

 

$17

$13

$48

$37

 

Consolidated Statement of Cash Flows

Nine Months Ended

(Dollars in Millions)