Company Quick10K Filing
Kohl's
Price49.64 EPS4
Shares159 P/E11
MCap7,893 P/FCF8
Net Debt1,510 EBIT825
TEV9,403 TEV/EBIT11
TTM 2019-11-02, in MM, except price, ratios
10-Q 2020-05-02 Filed 2020-06-05
10-K 2020-02-01 Filed 2020-03-18
10-Q 2019-11-02 Filed 2019-12-06
10-Q 2019-08-03 Filed 2019-09-06
10-Q 2019-05-04 Filed 2019-06-07
10-K 2019-02-02 Filed 2019-03-22
10-Q 2018-11-03 Filed 2018-12-07
10-Q 2018-08-04 Filed 2018-09-07
10-Q 2018-05-05 Filed 2018-06-08
10-K 2018-02-03 Filed 2018-03-23
10-Q 2017-10-28 Filed 2017-12-01
10-Q 2017-07-29 Filed 2017-08-31
10-Q 2017-04-29 Filed 2017-06-02
10-K 2017-01-28 Filed 2017-03-17
10-Q 2016-10-29 Filed 2016-12-02
10-Q 2016-07-30 Filed 2016-09-02
10-Q 2016-04-30 Filed 2016-06-03
10-K 2016-01-30 Filed 2016-03-18
10-Q 2015-10-31 Filed 2015-12-04
10-Q 2015-08-01 Filed 2015-09-04
10-Q 2015-05-02 Filed 2015-06-05
10-K 2015-01-31 Filed 2015-03-20
10-Q 2014-11-01 Filed 2014-12-05
10-Q 2014-08-02 Filed 2014-09-05
10-Q 2014-05-03 Filed 2014-06-06
10-K 2014-02-01 Filed 2014-03-21
10-Q 2013-08-03 Filed 2013-09-04
10-Q 2013-05-04 Filed 2013-06-07
10-K 2013-02-02 Filed 2013-03-22
10-Q 2012-10-27 Filed 2012-11-30
10-Q 2012-07-28 Filed 2012-08-31
10-Q 2012-04-28 Filed 2012-06-01
10-Q 2011-10-29 Filed 2011-12-02
10-Q 2011-07-30 Filed 2011-09-13
10-Q 2011-04-30 Filed 2011-06-01
10-K 2011-01-29 Filed 2011-03-18
10-Q 2010-10-30 Filed 2010-12-09
10-Q 2010-07-31 Filed 2010-09-03
10-Q 2010-05-01 Filed 2010-06-04
10-K 2010-01-30 Filed 2010-03-19
8-K 2020-06-08
8-K 2020-05-22
8-K 2020-05-19
8-K 2020-05-13
8-K 2020-05-07
8-K 2020-04-27
8-K 2020-04-16
8-K 2020-04-15
8-K 2020-04-15
8-K 2020-03-30
8-K 2020-03-19
8-K 2020-03-13
8-K 2020-03-09
8-K 2020-03-03
8-K 2020-02-02
8-K 2020-01-09
8-K 2019-11-19
8-K 2019-10-07
8-K 2019-09-16
8-K 2019-09-03
8-K 2019-08-28
8-K 2019-08-20
8-K 2019-07-25
8-K 2019-07-15
8-K 2019-05-21
8-K 2019-05-15
8-K 2019-04-18
8-K 2019-03-05
8-K 2019-01-29
8-K 2019-01-10
8-K 2018-12-20
8-K 2018-11-20
8-K 2018-08-21
8-K 2018-05-22
8-K 2018-05-09
8-K 2018-05-09
8-K 2018-04-26
8-K 2018-04-16
8-K 2018-04-13
8-K 2018-04-10
8-K 2018-04-02
8-K 2018-03-16
8-K 2018-03-01
8-K 2018-01-08

KSS 10Q Quarterly Report

Part I. Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 6. Exhibits
EX-3.2 kss-ex32_10.htm
EX-31.1 kss-ex311_6.htm
EX-31.2 kss-ex312_8.htm
EX-32.1 kss-ex321_7.htm
EX-32.2 kss-ex322_9.htm

Kohl's Earnings 2020-05-02

Balance SheetIncome StatementCash Flow
2016128402012201420172020
Assets, Equity
10.08.06.04.02.00.02012201420172020
Rev, G Profit, Net Income
1.10.70.3-0.0-0.4-0.82012201420172020
Ops, Inv, Fin

kss-10q_20200502.htm
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Table of Contents

 

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 May 2, 2020

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

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 (262703-7000

 

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

 

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: May 29, 2020 Common Stock, Par Value $0.01 per Share, 157,736,808 shares outstanding.

 

 


 

KOHL’S CORPORATION

INDEX

 

PART I

FINANCIAL INFORMATION

 

Item 1.

Financial Statements:

 

 

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

12

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

19

Item 4.

Controls and Procedures

19

 

 

 

PART II

OTHER INFORMATION

 

Item 1A.

Risk Factors

20

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

22

Item 6.

Exhibits

23

Signatures

24

 

2

 


Table of Contents

 

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

KOHL’S CORPORATION

CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

(Dollars in Millions)

May 2, 2020

February 1, 2020

May 4, 2019

Assets

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

$

2,039

 

$

723

 

$

543

 

Merchandise inventories

 

3,557

 

 

3,537

 

 

3,680

 

Income tax receivable

 

174

 

 

15

 

 

15

 

Other

 

400

 

 

374

 

 

397

 

Total current assets

 

6,170

 

 

4,649

 

 

4,635

 

Property and equipment, net

 

7,169

 

 

7,352

 

 

7,211

 

Operating leases

 

2,373

 

 

2,391

 

 

2,453

 

Other assets

 

157

 

 

163

 

 

167

 

Total assets

$

15,869

 

$

14,555

 

$

14,466

 

 

 

 

 

 

 

 

 

 

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

Accounts payable

$

1,866

 

$

1,206

 

$

1,295

 

Accrued liabilities

 

1,070

 

 

1,233

 

 

1,184

 

Income taxes payable

 

68

 

 

48

 

 

40

 

Current portion of:

 

 

 

 

 

 

 

 

 

Finance lease and financing obligations

 

124

 

 

124

 

 

115

 

Operating leases

 

159

 

 

158

 

 

158

 

Total current liabilities

 

3,287

 

 

2,769

 

 

2,792

 

Long-term debt

 

3,449

 

 

1,856

 

 

1,855

 

Finance lease and financing obligations

 

1,351

 

 

1,367

 

 

1,225

 

Operating leases

 

2,605

 

 

2,619

 

 

2,680

 

Deferred income taxes

 

165

 

 

260

 

 

233

 

Other long-term liabilities

 

222

 

 

234

 

 

239

 

Shareholders’ equity:

 

 

 

 

 

 

 

 

 

Common stock

 

4

 

 

4

 

 

4

 

Paid-in capital

 

3,289

 

 

3,272

 

 

3,223

 

Treasury stock, at cost

 

(11,593

)

 

(11,571

)

 

(11,221

)

Retained earnings

 

13,090

 

 

13,745

 

 

13,436

 

Total shareholders’ equity

$

4,790

 

$

5,450

 

$

5,442

 

Total liabilities and shareholders’ equity

$

15,869

 

$

14,555

 

$

14,466

 

 

See accompanying Notes to Consolidated Financial Statements

 

3


Table of Contents

 

KOHL’S CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

 

Quarter Ended

(Dollars in Millions, Except per Share Data)

May 2, 2020

May 4, 2019

Net sales

$

2,160

 

$

3,821

 

Other revenue

 

268

 

 

266

 

Total revenue

 

2,428

 

 

4,087

 

Cost of merchandise sold

 

1,787

 

 

2,415

 

Operating expenses:

 

 

 

 

 

 

Selling, general, and administrative

 

1,066

 

 

1,275

 

Depreciation and amortization

 

227

 

 

230

 

Impairments, store closing, and other costs

 

66

 

 

49

 

Operating (loss) income

 

(718

)

 

118

 

Interest expense, net

 

58

 

 

52

 

(Loss) income before income taxes

 

(776

)

 

66

 

(Benefit) provision for income taxes

 

(235

)

 

4

 

Net (loss) income

$

(541

)

$

62

 

Net (loss) income per share:

 

 

 

 

 

 

Basic

$

(3.52

)

$

0.38

 

Diluted

$

(3.52

)

$

0.38

 

 

See accompanying Notes to Consolidated Financial Statements

 

4


Table of Contents

 

KOHL’S CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(Unaudited)

 

 

Quarter Ended

(Dollars in Millions, Except per Share Data)

May 2, 2020

May 4, 2019

Common stock

 

 

 

 

 

 

Balance, beginning of period

$

4

 

$

4

 

Stock-based awards

 

 

 

 

Balance, end of period

$

4

 

$

4

 

 

 

 

 

 

 

 

Paid-in capital

 

 

 

 

 

 

Balance, beginning of period

$

3,272

 

$

3,204

 

Stock-based awards

 

17

 

 

19

 

Balance, end of period

$

3,289

 

$

3,223

 

 

 

 

 

 

 

 

Treasury stock, at cost

 

 

 

 

 

 

Balance, beginning of period

$

(11,571

)

$

(11,076

)

Treasury stock purchases

 

(8

)

 

(121

)

Stock-based awards

 

(20

)

 

(25

)

Dividends paid

 

6

 

 

1

 

Balance, end of period

$

(11,593

)

$

(11,221

)

 

 

 

 

 

 

 

Retained earnings

 

 

 

 

 

 

Balance, beginning of period

$

13,745

 

$

13,395

 

Change in accounting standard (a)

 

 

 

88

 

Net (loss) earnings

 

(541

)

 

62

 

Dividends paid

 

(114

)

 

(109

)

Balance, end of period

$

13,090

 

$

13,436

 

 

 

 

 

 

 

 

Total shareholders' equity, end of period

$

4,790

 

$

5,442

 

 

 

 

 

 

 

 

Common stock

 

 

 

 

 

 

Shares, beginning of period

 

375

 

 

374

 

Stock-based awards

 

2

 

 

1

 

Shares, end of period

 

377

 

 

375

 

Treasury stock

 

 

 

 

 

 

Shares, beginning of period

 

(219

)

 

(211

)

Treasury stock purchases

 

 

 

(2

)

Shares, end of period

 

(219

)

 

(213

)

Total shares outstanding, end of period

 

158

 

 

162

 

 

 

 

 

 

 

 

Dividends paid per common share

$

0.704

 

$

0.67

 

 

(a)Adoption of new lease accounting standard in 2019.

 

See accompanying Notes to Consolidated Financial Statements 

5


Table of Contents

 

KOHL’S CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

Quarter Ended

   (Dollars in Millions)

May 2, 2020

May 4, 2019

Operating activities

 

 

 

 

 

 

Net (loss) income

$

(541

)

$

62

 

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

 

 

 

 

 

 

Depreciation and amortization

 

227

 

 

230

 

Share-based compensation

 

15

 

 

15

 

Deferred income taxes

 

(91

)

 

18

 

Impairments, store closing, and other costs

 

51

 

 

49

 

Non-cash inventory costs

 

187

 

 

 

Non-cash lease expense

 

37

 

 

37

 

Other non-cash expenses

 

5

 

 

2

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Merchandise inventories

 

(205

)

 

(202

)

Other current and long-term assets

 

(21

)

 

6

 

Accounts payable

 

660

 

 

108

 

Accrued and other long-term liabilities

 

(98

)

 

(141

)

Income taxes

 

(139

)

 

1

 

Operating lease liabilities

 

(34

)

 

(49

)

Net cash provided by operating activities

 

53

 

 

136

 

Investing activities

 

 

 

 

 

 

Acquisition of property and equipment

 

(162

)

 

(238

)

Net cash used in investing activities

 

(162

)

 

(238

)

Financing activities

 

 

 

 

 

 

Proceeds from issuance of debt

 

2,097

 

 

 

Deferred financing costs

 

(19

)

 

 

Treasury stock purchases

 

(8

)

 

(121

)

Shares withheld for taxes on vested restricted shares

 

(20

)

 

(25

)

Dividends paid

 

(108

)

 

(108

)

Reduction of long-term borrowings

 

(497

)

 

(6

)

Finance lease and financing obligation payments

 

(23

)

 

(31

)

Proceeds from stock option exercises

 

 

 

2

 

Proceeds from financing obligations

 

3

 

 

 

Net cash provided by (used in) financing activities

 

1,425

 

 

(289

)

Net increase (decrease) in cash and cash equivalents

 

1,316

 

 

(391

)

Cash and cash equivalents at beginning of period

 

723

 

 

934

 

Cash and cash equivalents at end of period

$

2,039

 

$

543

 

Supplemental information

 

 

 

 

 

 

Interest paid, net of capitalized interest

$

39

 

$

32

 

Income taxes paid

 

1

 

 

7

 

Property and equipment acquired through:

 

 

 

 

 

 

  Finance lease liabilities

 

8

 

 

10

 

  Operating lease liabilities

 

20

 

 

49

 

 

See accompanying Notes to Consolidated Financial Statements

 

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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 accounting principles generally accepted in the United States 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 after incorporating 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 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.

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. 

As a result of the COVID-19 pandemic and store closures, we recorded a reserve of $163 million for excess seasonal inventory where the expected selling price is less than cost for the quarter ended May 2, 2020. No reserve was recorded as of February 1, 2020 or May 4, 2019. In addition, $24 million of inventory was written off during the first quarter of 2020 as there was no future recoverable value.

 

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KOHL’S CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

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 $51 million in the first quarter of 2020 in Impairments, store closing, and other costs. In connection with the closure of four stores in the first quarter of 2019, we recorded impairment charges of $49 million in the first quarter of 2019 in Impairments, store closing, and other costs.

As of May 2, 2020, we had assets held for sale of $24 million. 

Restructuring Reserve

The following table summarizes changes in the restructuring reserve during the quarter ended May 2, 2020:

 

(Dollars In Millions)

Severance

Balance - February 1, 2020

$

27

 

Payments and reversals

 

(16

)

Additions

 

2

 

Balance - May 2, 2020

$

13

 

Charges related to corporate restructuring efforts are recorded in Impairments, store, closing, and other costs. 

Recent Accounting Pronouncements

During the quarter ended May 2, 2020, we adopted the new accounting standard on accounting for expected credit losses (ASU 2016-13). 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.

During the quarter ended May 2, 2020, we adopted the new accounting standard on recognizing implementation costs related to a cloud computing arrangement (ASU 2018-15). 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.

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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Table of Contents

KOHL’S CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

2. Revenue Recognition

The following table summarizes net sales by line of business:

 

 

Quarter Ended

(Dollars in Millions)

May 2, 2020

May 4, 2019

Women's

$

593

 

$

1,224

 

Men's

 

363

 

 

749

 

Home

 

483

 

 

572

 

Children's

 

269

 

 

457

 

Footwear

 

233

 

 

421

 

Accessories

 

219

 

 

398

 

Net sales

$

2,160

 

$

3,821

 

 

Unredeemed gift cards and merchandise return card liabilities totaled $301 million as of May 2, 2020, $334 million as of February 1, 2020 and $280 million as of May 4, 2019. Revenue of $60 million was recognized during Q1 2020 from the February 1, 2020 ending balance.

3. Debt

Long-term debt, which includes draws on the revolving credit facility, consists of the following unsecured and secured senior debt:

 

 

Effective

Rate

 

Coupon

Rate

Outstanding

Maturity

(Dollars in Millions)

May 2,

2020

February 1,

2020

May 4,

2019

2023

3.25

%

3.25

%

$

350

 

$

350

 

$

350

 

2023

4.78

%

4.75

%

 

184

 

 

184

 

 

184

 

2025

9.50

%

9.50

%

 

600

 

 

 

 

 

2025

4.25

%

4.25

%

 

650

 

 

650

 

 

650

 

2029

7.36

%

7.25

%

 

42

 

 

42

 

 

42

 

2033

6.05

%

6.00

%

 

113

 

 

113

 

 

113

 

2037

6.89

%

6.88

%

 

101

 

 

101

 

 

101

 

2045

5.57

%

5.55

%

 

427

 

 

427

 

 

427

 

Outstanding unsecured senior debt

  

 

  

 

 

2,467

 

 

1,867

 

 

1,867

 

Unamortized debt discounts and deferred financing costs

  

 

  

 

 

(18

)

 

(11

)

 

(12

)

Unsecured senior debt

  

 

  

 

 

2,449

 

 

1,856

 

 

1,855

 

Effective interest rate

  

 

  

 

 

5.90

%

 

4.74

%

 

4.74

%

Secured senior debt

  

 

  

 

 

1,000

 

 

 

 

 

Total long-term debt

  

 

  

 

$

3,449

 

$        

1,856

 

$

1,855

 

 

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 $2.2 billion at May 2, 2020, $2.0 billion at February 1, 2020 and $1.9 billion at May 4, 2019.

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KOHL’S CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

In March 2020, we fully drew down our $1.0 billion senior unsecured revolver. In April 2020, we replaced and upsized the unsecured credit facility with a $1.5 billion senior secured, asset based revolving credit facility maturing in July 2024. The revolver is secured by substantially all of our assets other than real estate, and contains customary events of default and financial, affirmative, and negative covenants, including but not limited to, a springing financial covenant related to our fixed charge coverage ratio and restrictions on indebtedness, liens, investments, asset dispositions, and restricted payments, including a restriction on dividends in 2020 if our outstanding borrowings under the credit facility exceed $1.0 billion. At May 2, 2020, $1.0 billion was outstanding on the credit facility bearing an effective interest rate of 3.41%. Outstanding borrowings under the credit facility bear interest at a variable rate based on LIBOR plus the applicable margin. No amounts were outstanding on the credit facility in place as of February 1, 2020 or May 4, 2019.

In April 2020, we issued $600 million of 9.50% notes with semi-annual interest payments beginning in November 2020. The notes include coupon rate step ups if our long-term debt is downgraded to below a BBB- credit rating by S&P Global Ratings or Baa3 by Moody’s Investors Service, Inc. The notes mature in May 2025. We used part of the net proceeds from this offering to repay $500 million of the borrowings under our senior secured, asset based revolving credit facility with the remaining net proceeds available for general corporate purposes.

4. Stock-Based Awards

The following table summarizes our stock-based awards activity for the quarter ended May 2, 2020:

 

 

Stock Options

Nonvested Stock Awards

Performance Share Units

(Shares and Units in Thousands)

Shares

Weighted

Average

Exercise

Price

Shares

Weighted

Average

Grant Date

Fair Value

Units

Weighted

Average

Grant Date

Fair Value

Balance - February 1, 2020

 

87

 

$

51.78

 

 

2,312

 

$

56.24

 

 

1,274

 

$

61.55

 

Granted

 

 

 

 

 

2,242

 

 

20.13

 

 

702

 

 

20.95

 

Exercised/vested

 

 

 

 

 

(730

)

 

54.08

 

 

(826

)

 

42.72

 

Forfeited/expired

 

(20

)

 

49.39

 

 

(145

)

 

55.30

 

 

(25

)

 

73.55

 

Balance - May 2, 2020

 

67

 

$

52.49

 

 

3,679

 

$

34.69

 

 

1,125

 

$

49.75

 

 

In 2019, we granted 1,747,441 of stock warrants. The total vested and unvested warrants as of May 2, 2020 were 349,489 and 1,397,952, respectively.

5. Contingencies

We are subject to certain legal proceedings and claims arising out of the conduct of our business. In the opinion of management, the outcome of these proceedings and litigation will not have a material adverse impact on our Consolidated Financial Statements.

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Table of Contents

KOHL’S CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

6. Net (Loss) Income Per Share

Basic Net (loss) income per share is Net (loss) income divided by the average number of common shares outstanding during the period. Diluted Net (loss) income per share includes incremental shares assumed for share-based awards and stock warrants. Potentially dilutive shares include stock options, unvested restricted stock units and awards, and warrants outstanding during the period, using the treasury stock method. Potentially dilutive shares are excluded from the computations of diluted EPS if their effect would be anti-dilutive.

The information required to compute basic and diluted Net (loss) income per share is as follows:

 

 

Quarter Ended

(Dollars and Shares in Millions, Except per Share Data)

May 2, 2020

May 4, 2019

Numerator—Net (loss) income

$

(541

)

$

62

 

Denominator—Weighted-average shares:

 

 

 

 

 

 

Basic

 

154

 

 

161

 

Dilutive impact

 

 

 

1

 

Diluted

 

154

 

 

162

 

Net (loss) income per share:

 

 

 

 

 

 

Basic

$

(3.52

)

$

0.38

 

Diluted

$

(3.52

)

$

0.38

 

 

The following potential shares of common stock were excluded from the diluted Net (loss) income per share calculation because their effect would have been anti-dilutive:

 

 

Quarter Ended

(Shares in Millions)

May 2, 2020

May 4, 2019

   Stock options, awards, units, and warrants

 

6

 

 

 

 

 

7. Subsequent Events

As part of our continuing efforts to leverage our existing assets for increased liquidity and value, on May 22, 2020, we closed on a sale leaseback transaction for our San Bernardino E-commerce fulfillment and distribution centers. The transaction generated $195 million in cash, and we expect to recognize a gain of approximately $127 million in Q2 2020.

 

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Table of Contents

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

For purposes of the following discussion, unless noted, all references to "the quarter” and “the first quarter” are for the three fiscal months (13 weeks) ended May 2, 2020 and May 4, 2019.

This Form 10-Q contains "forward-looking statements" made within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as "believes," “anticipates,” “plans,” "may," "intends," "will," "should," “expects” and similar expressions are intended to identify forward-looking statements. Forward-looking statements may include comments about our future sales or financial performance and our plans, performance, and other objectives, expectations, or intentions, such as statements regarding our liquidity, debt service requirements, planned capital expenditures, future store initiatives, and adequacy of capital resources and reserves. Forward-looking statements are based on our management’s then current views and assumptions and, as a result, are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected. Any such forward-looking statements are qualified by the important risk factors described in Part I, Item 1A of our 2019 Form 10-K or disclosed from time to time in our filings with the SEC, that could cause actual results to differ materially from those predicted by the forward-looking statements. Forward-looking statements relate to the date initially made and we undertake no obligation to update them.

Executive Summary

As of May 2, 2020, we operated 1,159 Kohl's stores, a website (www.Kohls.com), and 12 FILA outlets. Our Kohl's stores and website sell moderately-priced proprietary and national brand apparel, footwear, accessories, beauty, and home products. Our Kohl's stores generally carry a consistent merchandise assortment with some differences attributable to local preferences. Our website includes merchandise which is available in our stores, as well as merchandise that is available only online.

Key financial results for the quarter included:

 

Significantly increased financial flexibility during quarter, ending with $2.0 billion in cash

 

Swift and aggressive actions taken in response to COVID-19 resulted in positive operating cash flow

 

43.5% decrease in net sales

 

1,950 basis point decrease in gross margin as a percent of net sales

 

16.4% decrease in SG&A

 

$3.52 diluted loss per share

 

$3.22 diluted loss per share on a non-GAAP basis

Recent Developments

As discussed in our 2019 Form 10-K, the World Health Organization declared the outbreak of COVID-19 as a pandemic in March 2020. Subsequently, COVID-19 has continued to spread throughout the United States. As a result, the President of the United States declared a national emergency. Federal, state, and local governing bodies mandated various restrictions, including travel restrictions, restrictions on public gatherings, stay at home orders and advisories, and quarantining of people who may have been exposed to the virus. The response to the COVID-19 pandemic has negatively affected the global economy, disrupted global supply chains, and created significant disruption in the financial and retail markets, including a decrease in consumer demand for our merchandise.

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Table of Contents

 

The COVID-19 pandemic has had, and will likely continue to have, significant adverse effects on our business including, but not limited to the following:

 

On March 20, 2020, the Company furloughed 85,000 store and distribution center associates, as well as some corporate office associates, as a result of temporarily closing all of our stores which limited our business to the digital channel.

 

Starting on May 4, 2020, Kohl’s began reopening stores in locations where permitted. As of June 5, 2020, we have reopened approximately 80% of our stores.

 

The Company experienced a significant decline in sales demand, and expects to continue to experience volatility in demand for its merchandise.

 

Additionally, social distancing measures or changes in consumer spending behaviors due to COVID-19 may continue to impact store traffic after normal operations are resumed and such actions could result in a loss of sales and profit. As our stores reopen, we have implemented numerous social distancing and safety measures. These include providing personal protective equipment to our employees, implementing a more rigorous cleaning process, including enhanced cleaning of high touch surfaces throughout the day, and installing protective barriers at all registers. To encourage social distancing, we installed social distancing signage and markers throughout the store, closed our fitting rooms, relocated Amazon returns to a separate area of the store, and are limiting occupancy in stores as appropriate. We have implemented a new process for handling merchandise returns, reduced store operating hours, and are providing dedicated shopping hours for at-risk individuals.

The chart below details costs that we believe are directly attributable to COVID-19:

 

(Dollars In Millions)

 

Quarter Ended

Description

Classification

May 2, 2020

Inventory write-downs

Cost of merchandise sold

$

187

 

Net compensation and benefits

Selling, general, and administrative

 

34

 

Supplies and other costs

Selling, general, and administrative

 

6

 

Asset write-offs and other

Impairments, store closing, and other costs

 

53

 

Total

 

$

280

 

 

In response to COVID-19 we have taken the following actions to preserve financial liquidity and flexibility:

 

Managed inventory receipts meaningfully lower,

 

Significantly reduced expenses across all areas of the business including marketing, technology, operations, and payroll,

 

Decreased planned capital expenditures by approximately $500 million,