Kohl's Earnings 2020-08-01
| Balance Sheet | Income Statement | Cash Flow |
|---|---|---|
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Assets, Equity
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Rev, G Profit, Net Income
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Ops, Inv, Fin
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
| | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Transition period from ________ to _________
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Securities registered pursuant to Section 12(b) of the Act:
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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.
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).
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.
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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
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: August 28, 2020 Common Stock, Par Value $0.01 per Share,
KOHL’S CORPORATION
INDEX
| PART I |
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| Item 1. |
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| Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations | 12 |
| Item 3. | 19 | |
| Item 4. | 20 | |
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| PART II |
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| Item 1A. | 21 | |
| Item 2. | 21 | |
| Item 6. | 22 | |
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| 23 |
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
KOHL’S CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
| (Dollars in Millions) | August 1, 2020 | February 1, 2020 | August 3, 2019 | ||||||
| Assets |
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| Current assets: |
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| Cash and cash equivalents | $ | |
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| Merchandise inventories |
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| Income tax receivable |
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| Other |
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| Total current assets |
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| Property and equipment, net |
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| Operating leases |
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| Other assets |
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| Total assets | $ | |
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| Liabilities and Shareholders’ Equity |
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| Current liabilities: |
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| Accounts payable | $ | |
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| Accrued liabilities |
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| Income taxes payable |
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| Current portion of: |
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| Finance lease and financing obligations |
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| Operating leases |
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| Total current liabilities |
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| Long-term debt |
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| Finance lease and financing obligations |
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| Operating leases |
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| Deferred income taxes |
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| Other long-term liabilities |
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| Shareholders’ equity: |
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| Common stock |
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| Paid-in capital |
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| Treasury stock, at cost |
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| Retained earnings |
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| Total shareholders’ equity | $ | |
| $ | |
| $ | |
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| Total liabilities and shareholders’ equity | $ | |
| $ | |
| $ | |
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See accompanying Notes to Consolidated Financial Statements
3
KOHL’S CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
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| Three Months Ended | Six Months Ended | ||||||||||
| (Dollars in Millions, Except per Share Data) | August 1, 2020 | August 3, 2019 | August 1, 2020 | August 3, 2019 | ||||||||
| Net sales | $ | |
| $ | |
| $ | |
| $ | |
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| Other revenue |
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| Total revenue |
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| Cost of merchandise sold |
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| Operating expenses: |
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| Selling, general, and administrative |
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| Depreciation and amortization |
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| Impairments, store closing, and other costs |
| ( | ) |
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| (Gain) on sale of real estate |
| ( | ) | — |
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| ( | ) | — |
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| Operating income (loss) |
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| Interest expense, net |
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| Income (loss) before income taxes |
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| (Benefit) provision for income taxes |
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| Net income (loss) | $ | |
| $ | |
| $ | ( | ) | $ | |
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| Net income (loss) per share: |
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| Basic | $ | |
| $ | |
| $ | ( | ) | $ | |
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| Diluted | $ | |
| $ | |
| $ | ( | ) | $ | |
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See accompanying Notes to Consolidated Financial Statements
4
KOHL’S CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(Unaudited)
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| Three Months Ended | Six Months Ended | ||||||||||
| (Dollars in Millions, Except per Share Data) | August 1, 2020 | August 3, 2019 | August 1, 2020 | August 3, 2019 | ||||||||
| Common stock |
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| Balance, beginning of period | $ | |
| $ | |
| $ | |
| $ | |
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| Stock-based awards |
| — |
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| — |
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| — |
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| — |
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| Balance, end of period | $ | |
| $ | |
| $ | |
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| Paid-in capital |
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| Balance, beginning of period | $ | |
| $ | |
| $ | |
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| Stock-based awards |
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| Balance, end of period | $ | |
| $ | |
| $ | |
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| Treasury stock, at cost |
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| Balance, beginning of period | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) |
| Treasury stock purchases |
| — |
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| ( | ) |
| ( | ) |
| Stock-based awards |
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| ( | ) |
| ( | ) |
| Dividends paid |
| — |
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| Balance, end of period | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) |
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| Retained earnings |
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| Balance, beginning of period | $ | |
| $ | |
| $ | |
| $ | |
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| Change in accounting standard (a) |
| — |
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| — |
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| — |
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| Net income (loss) |
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| ( | ) |
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| Dividends paid |
| — |
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| Balance, end of period | $ | |
| $ | |
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| $ | |
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| Total shareholders' equity, end of period | $ | |
| $ | |
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| $ | |
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| Common stock |
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| Shares, beginning of period |
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| Stock-based awards |
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| — |
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| Shares, end of period |
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| Treasury stock |
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| Shares, beginning of period |
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| Treasury stock purchases |
| — |
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| Shares, end of period |
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| Total shares outstanding, end of period |
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| Dividends paid per common share | $ | — |
| $ | |
| $ | |
| $ | |
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| (a) | Adoption of new lease accounting standard in 2019. |
See accompanying Notes to Consolidated Financial Statements
5
KOHL’S CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
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| Six Months Ended | |||||
| (Dollars in Millions) | August 1, 2020 | August 3, 2019 | ||||
| Operating activities |
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| Net (loss) income | $ | ( | ) | $ | |
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| Adjustments to reconcile net (loss) income to net cash provided by operating activities: |
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| Depreciation and amortization |
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| Share-based compensation |
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| Deferred income taxes |
| ( | ) |
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| Impairments, store closing, and other costs |
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| (Gain) on sale of real estate |
| ( | ) |
| — |
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| Non-cash inventory costs |
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| — |
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| Non-cash lease expense |
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| Other non-cash expense |
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| Changes in operating assets and liabilities: |
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| Merchandise inventories |
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| Other current and long-term assets |
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| Accounts payable |
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| Accrued and other long-term liabilities |
| ( | ) |
| ( | ) |
| Income taxes |
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| Operating lease liabilities |
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| Net cash provided by operating activities |
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| Investing activities |
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| Acquisition of property and equipment |
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| Proceeds from sale of real estate |
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| Net cash used in investing activities |
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| Financing activities |
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| Proceeds from issuance of debt |
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| — |
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| Deferred financing costs |
| ( | ) |
| — |
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| Treasury stock purchases |
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| Shares withheld for taxes on vested restricted shares |
| ( | ) |
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| Dividends paid |
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| ( | ) |
| Reduction of long-term borrowings |
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| Finance lease and financing obligation payments |
| ( | ) |
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| Proceeds from stock option exercises |
| — |
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| Proceeds from financing obligations |
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| Net cash provided by (used in) financing activities |
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| Net increase (decrease) in cash and cash equivalents |
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| Cash and cash equivalents at beginning of period |
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| Cash and cash equivalents at end of period | $ | |
| $ | |
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| Supplemental information |
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| Interest paid, net of capitalized interest | $ | |
| $ | |
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| Income taxes paid |
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| Property and equipment acquired through: |
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| Finance lease liabilities |
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| Operating lease liabilities |
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See accompanying Notes to Consolidated Financial Statements
6
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 February 1, 2020 (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”) and the uncertainty surrounding the financial impact of the novel coronavirus (“COVID-19”) pandemic, 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.
Accounting Policies
The accounting policies the Company follows are set forth in its most recently filed Annual Report on Form 10-K. There have been no material changes to these accounting policies except as discussed below.
Use of Estimates
The preparation of Consolidated Financial Statements in conformity with U.S GAAP requires management to make estimates and assumptions that affect the amounts reported in the Consolidated Financial Statements and accompanying notes. We believe that our accounting estimates are appropriate and reflect the increased uncertainties surrounding the severity and duration of the COVID-19 pandemic. Actual results could differ from those estimates.
Leases
In the first quarter of 2020, we negotiated rent deferrals for a significant number of our stores, with repayment at later dates, primarily in the third and fourth quarter of 2020 and first and second quarter of 2021. These concessions provide a deferral of rent payments with no substantive changes to the original contract. Consistent with updated guidance from the Financial Accounting Standards Board (“FASB”) in April 2020, we have elected to treat the COVID-19 pandemic-related rent deferrals as accrued liabilities. We will continue to recognize expense during the deferral periods.
A sale leaseback was completed during the quarter ended August 1, 2020 for our San Bernardino E-commerce fulfillment and distribution center. The properties were sold for $
Merchandise Inventories
Merchandise inventories are valued at the lower of cost or market using the Retail Inventory Method ("RIM"). Under RIM, the valuation of inventory at cost and the resulting gross margins are calculated by applying a cost-to-retail ratio to the retail value of inventory. RIM is an averaging method that has been widely used in the retail industry due to its practicality. The use of RIM will result in inventory being valued at the lower of cost or market since permanent markdowns are taken as a reduction of the retail value of inventories. A reserve would be recorded if the future estimated selling price is less than cost.
7
In the first quarter of 2020, as a result of the COVID-19 pandemic and store closures, we recorded a reserve of $
Property and Equipment and Long Lived Assets
All property and equipment and other long-lived assets are reviewed for potential impairment at least annually or when events or changes in circumstances indicate that the asset’s carrying value may not be recoverable. If such indicators are present, it is determined whether the sum of the estimated undiscounted future cash flows attributable to such assets is less than the carrying value of the assets. A potential impairment has occurred if projected future undiscounted cash flows are less than the carrying value of the assets. Given the substantial reduction in our sales and the reduced cash flow projections as a result of the store closures due to the COVID-19 pandemic, we determined that a triggering event occurred in the first quarter of 2020 and an impairment assessment was warranted for certain stores and other long lived assets. Based on this assessment, we recorded impairment charges of $
In the second quarter of 2020, we recorded an impairment charge of $
Restructuring Reserve
The following table summarizes changes in the restructuring reserve during the six months ended August 1, 2020:
| (Dollars In Millions) | Severance | ||
| Balance - February 1, 2020 | $ | |
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| Payments and reversals |
| ( | ) |
| Additions |
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| Balance - August 1, 2020 | $ | |
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Charges related to corporate restructuring efforts are recorded in Impairments, store closing, and other costs.
Recent Accounting Pronouncements
We adopted the new accounting standard on accounting for expected credit losses (ASU 2016-13), effective at the beginning of fiscal 2020. We applied the new principle using a modified retrospective approach. There was no material impact on our financial statements due to adoption of the new standard.
We adopted the new accounting standard on recognizing implementation costs related to a cloud computing arrangement (ASU 2018-15), effective at the beginning of fiscal 2020. We applied the new principle using a prospective approach. There was no material impact on our financial statements due to adoption of the new standard.
8
The following table provides a brief description of issued, but not yet effective, accounting standards:
| Standard | Description | Effect on our Financial Statements |
| Income Taxes (ASU 2019-12)
Issued December 2019
Effective Q1 2021 | The new standard is designed to simplify the accounting for income taxes by removing certain exceptions to the general principles as outlined in U.S. GAAP. | We are evaluating the impact of the new standard on our financial statements.
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2. Revenue Recognition
The following table summarizes net sales by line of business:
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| Three Months Ended | Six Months Ended | ||||||||||
| (Dollars in Millions) | August 1, 2020 | August 3, 2019 | August 1, 2020 | August 3, 2019 | ||||||||
| Women's | $ | |
| $ | |
| $ | |
| $ | |
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| Home |
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| Men’s |
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| Children's |
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| Footwear |
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| Accessories |
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| Net Sales | $ | |
| $ | |
| $ | |
| $ | |
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Unredeemed gift cards and merchandise return card liabilities totaled $
3. Debt
Long-term debt, which includes draws on the revolving credit facility, consists of the following unsecured and secured senior debt:
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| Effective Rate | Coupon Rate | Outstanding | ||||||||||
| Maturity (Dollars in Millions) | August 1, 2020 | February 1, 2020 | August 3, 2019 | ||||||||||
| 2023 | | % | | % | $ | |
| $ | |
| $ | |
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| 2023 | | % | | % |
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| 2025 | | % | | % |
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| — |
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| 2025 | | % | | % |
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