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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 July 30, 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

img72428580_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: August 26, 2022 Common Stock, Par Value $0.01 per Share, 116,638,020 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

13

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

20

Item 4.

Controls and Procedures

20

 

 

 

PART II

OTHER INFORMATION

22

Item 1A.

Risk Factors

22

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

22

Item 5.

Other Information

22

Item 6.

Exhibits

23

 

Signatures

24

 

 

 

Table of Contents

 

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

KOHL’S CORPORATION

CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

(Dollars in Millions)

July 30, 2022

January 29, 2022

July 31, 2021

Assets

 

 

 

Current assets:

 

 

 

Cash and cash equivalents

$222

$1,587

$2,569

Merchandise inventories

4,034

3,067

2,733

Other

374

369

356

Total current assets

4,630

5,023

5,658

Property and equipment, net

8,228

7,304

7,107

Operating leases

2,296

2,248

2,301

Other assets

469

479

440

Total assets

$15,623

$15,054

$15,506

 

 

 

 

Liabilities and Shareholders’ Equity

 

 

 

Current liabilities:

 

 

 

Accounts payable

$1,497

$1,683

$1,495

Accrued liabilities

1,426

1,340

1,554

Borrowings under revolving credit facility

79

  —

  —

Current portion of:

 

 

 

Long-term debt

164

  —

  —

Finance leases and financing obligations

96

118

117

Operating leases

108

145

143

Total current liabilities

3,370

3,286

3,309

Long-term debt

1,747

1,910

1,909

Finance leases and financing obligations

2,830

2,133

1,906

Operating leases

2,568

2,479

2,532

Deferred income taxes

194

206

245

Other long-term liabilities

370

379

386

Shareholders’ equity:

 

 

 

Common stock

4

4

4

Paid-in capital

3,406

3,375

3,349

Treasury stock, at cost

           (13,151)

           (12,975)

           (11,920)

Retained earnings

14,285

14,257

13,786

Total shareholders’ equity

$4,544

$4,661

$5,219

Total liabilities and shareholders’ equity

$15,623

$15,054

$15,506

 

See accompanying Notes to Consolidated Financial Statements

 

3

Table of Contents

 

KOHL’S CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

 

Three Months Ended

Six Months Ended

(Dollars in Millions, Except per Share Data)

July 30, 2022

July 31, 2021

July 30, 2022

July 31, 2021

Net sales

$3,863

$4,223

$7,334

$7,885

Other revenue

224

224

468

449

Total revenue

4,087

4,447

7,802

8,334

Cost of merchandise sold

2,332

2,426

4,472

4,659

Operating expenses:

 

 

 

 

Selling, general, and administrative

1,283

1,241

2,576

2,411

Depreciation and amortization

206

210

406

421

Operating income

266

570

348

843

Interest expense, net

77

62

145

129

Loss on extinguishment of debt

  —

  —

  —

201

Income before income taxes

189

508

203

513

Provision for income taxes

46

126

46

117

Net income

$143

$382

$157

$396

Net income per share:

 

 

 

 

Basic

$1.13

$2.51

$1.24

$2.58

Diluted

$1.11

$2.48

$1.22

$2.55

 

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

Six Months Ended

(Dollars in Millions, Except per Share Data)

July 30, 2022

July 31, 2021

July 30, 2022

July 31, 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

$3,395

$3,333

$3,375

$3,319

Stock-based awards

11

16

31

30

Balance, end of period

$3,406

$3,349

$3,406

$3,349

 

 

 

 

 

Treasury stock

 

 

 

 

Balance, beginning of period

$(13,150)

$(11,663)

$(12,975)

$(11,595)

Treasury stock purchases

                    —

  (255)

                 (158)

  (301)

Stock-based awards

                     (2)

                     (3)

                   (20)

                   (25)

Dividends paid

1

1

2

1

Balance, end of period

$(13,151)

$(11,920)

$(13,151)

$(11,920)

 

 

 

 

 

Retained earnings

 

 

 

 

Balance, beginning of period

$14,207

$13,443

$14,257

$13,468

Net income

143

382

157

396

Dividends paid

                   (65)

  (39)

                 (129)

  (78)

Balance, end of period

$14,285

$13,786

$14,285

$13,786

 

 

 

 

 

Total shareholders' equity, end of period

$4,544

$5,219

$4,544

$5,219

 

 

 

 

 

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)

                 (220)

                 (246)

                 (219)

Treasury stock purchases

  —

  (5)

  (3)

  (6)

Shares, end of period

                 (249)

                 (225)

                 (249)

                 (225)

Total shares outstanding, end of period

128

152

128

152

 

 

 

 

 

Dividends paid per common share

$0.50

$0.25

$1.00

$0.50

 

See accompanying Notes to Consolidated Financial Statements

 

5

Table of Contents

 

KOHL’S CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

Six Months Ended

(Dollars in Millions)

July 30, 2022

July 31, 2021

Operating activities

 

 

Net income

$157

$396

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

 

 

Depreciation and amortization

406

421

Share-based compensation

26

25

Deferred income taxes

                   (12)

                  (57)

Loss on extinguishment of debt

  —

201

Non-cash lease expense

56

74

Other non-cash expense

5

9

Changes in operating assets and liabilities:

 

 

Merchandise inventories

                 (964)

                 (138)

Other current and long-term assets

                   (29)

590

Accounts payable

                 (185)

19

Accrued and other long-term liabilities

51

228

Operating lease liabilities

                   (57)

                  (76)

Net cash (used in) provided by operating activities

                 (546)

1,692

Investing activities

 

 

Acquisition of property and equipment

                 (548)

                 (191)

Proceeds from sale of real estate

4

4

Net cash used in investing activities

                 (544)

                 (187)

Financing activities

 

 

Proceeds from issuance of debt

  —

500

Net borrowings under revolving credit facility

79

  —

Deferred financing costs

  —

  (5)

Treasury stock purchases

                 (158)

                 (301)

Shares withheld for taxes on vested restricted shares

                   (20)

                  (25)

Dividends paid

                 (127)

                  (77)

Reduction of long-term borrowings

  —

  (1,044)

Premium paid on redemption of debt

  —

  (192)

Finance lease and financing obligation payments

  (55)

                  (65)

Proceeds from financing obligations

5

4

Proceeds from stock option exercises

1

1

Other

  —

  (3)

Net cash used in financing activities

                 (275)

              (1,207)

Net (decrease) increase in cash and cash equivalents

              (1,365)

298

Cash and cash equivalents at beginning of period

1,587

2,271

Cash and cash equivalents at end of period

$222

$2,569

Supplemental information

 

 

Interest paid, net of capitalized interest

$137

$128

Income taxes paid

49

43

 

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

Six Months Ended

(Dollars in Millions)

July 30, 2022

July 31, 2021

July 30, 2022

July 31, 2021

Women's

$1,239

$1,344

$2,316

$2,461

Men's

865

942

1,575

1,629

Home

502

609

1,027

1,243

Accessories

458

403

848

771

Children's

414

463

825

931

Footwear

385

462

743

850

Net Sales

$3,863

$4,223

$7,334

$7,885

 

Unredeemed gift cards and merchandise return card liabilities totaled $294 million as of July 30, 2022, $353 million as of January 29, 2022, and $281 million as of July 31, 2021. In the second quarter of 2022 and 2021, net sales recognized from gift cards redeemed in the current period and issued in prior years totaled $39 million and $38 million, respectively. Year to date 2022 and 2021, net sales of $113 million and $110 million, respectively, were recognized during the current period from gift cards redeemed during the current year and issued in prior years.

 

 

 

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3. Debt

Borrowings under the revolving credit facility, recorded as short-term debt, has $79 million outstanding as of July 30, 2022. No amounts were outstanding at January 29, 2022 or July 31, 2021.

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

 

 

 

 

Outstanding

Maturity (Dollars in Millions)

Effective Rate

Coupon Rate

July 30,
2022

January 29,
2022

July 31,
2021

2023

3.25%

3.25%

$164

$164

$164

2023

4.78%

4.75%

111

111

111

2025

9.50%

9.50%

113

113

113

2025

4.25%

4.25%

353

353

353

2029

7.36%

7.25%

42

42

42

2031

3.40%

3.38%

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

 

 

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 $1.7 billion at July 30, 2022, $2.0 billion at January 29, 2022, and $2.2 billion at July 31, 2021.

Our various debt agreements contain covenants including limitations on additional indebtedness and certain financial tests. As of July 30, 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 which 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.

During the first half of 2022, we opened 340 Sephora shop-in-shops within our Kohl's stores and now have a total of 540 open as of the end of the second quarter. We plan to open an additional 60 shop-in-shops during the remainder

 

 

 

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of 2022, as well as at least 250 more shops in 2023. We are also working with Sephora to have a Sephora presence in the remaining approximately 300 stores. 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

July 30,
2022

January 29,
2022

July 31,
2021

Assets

 

 

 

 

Operating leases

Operating leases

$2,296

$2,248

$2,301

Finance leases

Property and equipment, net

2,114

1,442

1,226

Total operating and finance leases

4,410

3,690

3,527

Liabilities

 

 

 

 

Current

 

 

 

 

Operating leases

Current portion of operating leases

108

145

143

Finance leases

Current portion of finance leases and financing obligations

78

87

83

Noncurrent

 

 

 

 

Operating leases

Operating leases

2,568

2,479

2,532

Finance leases

Finance leases and financing obligations

2,381

1,688

1,457

Total operating and finance leases

$5,135

$4,399

$4,215

 

Consolidated Statement of Operations

Three Months Ended

Six Months Ended

(Dollars in Millions)

Classification

July 30, 2022

July 31, 2021

July 30, 2022

July 31, 2021

Operating leases

Selling, general, and administrative

$64

$79

$133

$156

Finance leases

 

 

 

 

 

Amortization of leased assets

Depreciation and amortization

32

23

61

43

Interest on leased assets

Interest expense, net

36

27

68

52

Total operating and finance leases

 

$132

$129

$262

$251

 

Consolidated Statement of Cash Flows

Six Months Ended

(Dollars in Millions)

July 30, 2022

July 31, 2021

Cash paid for amounts included in the measurement of leased liabilities

 

 

Operating cash flows from operating leases

$135

$165

Operating cash flows from finance leases

65

52

Financing cash flows from finance leases

44

47

The following table summarizes future lease payments by fiscal year:

 

 

July 30, 2022

(Dollars in millions)

Operating Leases

Finance Leases

Total

2022

$124

$94

$218

2023

251

218

469

2024

233

210

443

2025

227

205

432

2026

223

205

428

After 2026

3,617

3,722

7,339

Total lease payments

$4,675

$4,654

$9,329

Amount representing interest

                (1,999)

                (2,195)

                (4,194)

Lease liabilities

$2,676

$2,459

$5,135

 

 

 

 

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

 

 

July 30, 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:

 

 

Six Months Ended

(Dollars in Millions)

July 30, 2022

July 31, 2021

Property and equipment acquired (disposed) through exchange of:

 

 

Finance lease liabilities

$730

$569

Operating lease liabilities

114

               (29)

 

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

July 30,
2022

January 29,
2022

July 31,
2021

Assets

 

 

 

 

   Financing obligations

Property and equipment, net

$52

$55

$60

Liabilities

 

 

 

 

   Current

Current portion of finance leases and financing obligations

18

31

34

   Noncurrent

Finance leases and financing obligations

449

445

449

Total financing obligations

$467

$476

$483

 

Consolidated Statement of Operations

Three Months Ended

Six Months Ended

(Dollars in Millions)

Classification

July 30, 2022

July 31, 2021

July 30, 2022

July 31, 2021

Amortization of financing obligation assets

Depreciation and amortization

2

3

4

5

Interest on financing obligations

Interest expense, net

15