Kohl's Earnings 2020-10-31

Balance Sheet	Income Statement	Cash Flow
Assets, Equity	Rev, G Profit, Net Income	Ops, Inv, Fin

kss-10q_20201031.htm

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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 31, 2020

☐	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 (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

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 27, 2020 Common Stock, Par Value $0.01 per Share, 157,652,395 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	21
Item 4.	Controls and Procedures	21

PART II	OTHER INFORMATION
Item 1A.	Risk Factors	22
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	22
Item 6.	Exhibits	23
	Signatures	24

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

KOHL’S CORPORATION

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(Dollars in Millions)	October 31, 2020			February 1, 2020			November 2, 2019
Assets
Current assets:
Cash and cash equivalents	$	1,939		$	723		$	490
Merchandise inventories		3,607			3,537			4,887
Income tax receivable		115			15			25
Other		335			374			379
Total current assets		5,996			4,649			5,781
Property and equipment, net		6,876			7,352			7,364
Operating leases		2,422			2,391			2,427
Other assets		150			163			167
Total assets	$	15,444		$	14,555		$	15,739

Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	2,184		$	1,206		$	2,454
Accrued liabilities		1,272			1,233			1,347
Income taxes payable		—			48			2
Current portion of:
Finance lease and financing obligations		127			124			110
Operating leases		160			158			162
Total current liabilities		3,743			2,769			4,075
Long-term debt		2,450			1,856			1,856
Finance lease and financing obligations		1,402			1,367			1,332
Operating leases		2,644			2,619			2,643
Deferred income taxes		74			260			258
Other long-term liabilities		293			234			220
Shareholders’ equity:
Common stock		4			4			4
Paid-in capital		3,303			3,272			3,256
Treasury stock, at cost		(11,594	)		(11,571	)		(11,490	)
Retained earnings		13,125			13,745			13,585
Total shareholders’ equity	$	4,838		$	5,450		$	5,355
Total liabilities and shareholders’ equity	$	15,444		$	14,555		$	15,739

See accompanying Notes to Consolidated Financial Statements

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KOHL’S CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	Three Months Ended						Nine Months Ended
(Dollars in Millions, Except per Share Data)	October 31, 2020			November 2, 2019			October 31, 2020			November 2, 2019
Net sales	$	3,779		$	4,358		$	9,152		$	12,348
Other revenue		200			267			662			794
Total revenue		3,979			4,625			9,814			13,142
Cost of merchandise sold		2,424			2,775			6,360			7,740
Operating expenses:
Selling, general, and administrative		1,302			1,419			3,418			3,962
Depreciation and amortization		210			227			656			687
Impairments, store closing, and other costs		21			—			85			55
(Gain) on sale of real estate		—		—				(127	)	—
Operating income (loss)		22			204			(578	)		698
Interest expense, net		78			52			214			157
(Gain) loss on extinguishment of debt		—			(9	)		—			(9	)
(Loss) income before income taxes		(56	)		161			(792	)		550
(Benefit) provision for income taxes		(44	)		38			(286	)		124
Net (loss) income	$	(12	)	$	123		$	(506	)	$	426
Net (loss) income per share:
Basic	$	(0.08	)	$	0.79		$	(3.28	)	$	2.69
Diluted	$	(0.08	)	$	0.78		$	(3.28	)	$	2.67

See accompanying Notes to Consolidated Financial Statements

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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 31, 2020			November 2, 2019			October 31, 2020			November 2, 2019
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	$	3,290		$	3,236		$	3,272		$	3,204
Stock-based awards		13			20			31			52
Balance, end of period	$	3,303		$	3,256		$	3,303		$	3,256

Treasury stock, at cost
Balance, beginning of period	$	(11,594	)	$	(11,353	)	$	(11,571	)	$	(11,076	)
Treasury stock purchases		—			(133	)		(8	)		(387	)
Stock-based awards		—			(5	)		(21	)		(32	)
Dividends paid		—			1			6			5
Balance, end of period	$	(11,594	)	$	(11,490	)	$	(11,594	)	$	(11,490	)

Retained earnings
Balance, beginning of period	$	13,137		$	13,568		$	13,745		$	13,395
Change in accounting standard (a)		—			—			—			88
Net (loss) income		(12	)		123			(506	)		426
Dividends paid		—			(106	)		(114	)		(324	)
Balance, end of period	$	13,125		$	13,585		$	13,125		$	13,585

Total shareholders' equity, end of period	$	4,838		$	5,355		$	4,838		$	5,355

Common stock
Shares, beginning of period		377			375			375			374
Stock-based awards		—			—			2			1
Shares, end of period		377			375			377			375
Treasury stock
Shares, beginning of period		(219	)		(215	)		(219	)		(211	)
Treasury stock purchases		—			(3	)		—			(7	)
Shares, end of period		(219	)		(218	)		(219	)		(218	)
Total shares outstanding, end of period		158			157			158			157

Dividends paid per common share	$	—		$	0.67		$	0.704		$	2.01

(a)

Adoption of new lease accounting standard in 2019.

See accompanying Notes to Consolidated Financial Statements

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KOHL’S CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Nine Months Ended
(Dollars in Millions)	October 31, 2020			November 2, 2019
Operating activities
Net (loss) income	$	(506	)	$	426
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization		656			687
Share-based compensation		26			47
Deferred income taxes		(181	)		45
Impairments, store closing, and other costs		49			45
(Gain) on sale of real estate		(127	)		—
(Gain) loss on extinguishment of debt		—			(9	)
Non-cash inventory costs		187			—
Non-cash lease expense		111			112
Other non-cash expense (income)		15			(3	)
Changes in operating assets and liabilities:
Merchandise inventories		(251	)		(1,405	)
Other current and long-term assets		54			34
Accounts payable		978			1,266
Accrued and other long-term liabilities		159			(26	)
Income taxes		(147	)		(49	)
Operating lease liabilities		(113	)		(125	)
Net cash provided by operating activities		910			1,045
Investing activities
Acquisition of property and equipment		(264	)		(678	)
Proceeds from sale of real estate		194			—
Other		—			8
Net cash used in investing activities		(70	)		(670	)
Financing activities
Proceeds from issuance of debt		2,097			—
Deferred financing costs		(19	)		—
Treasury stock purchases		(8	)		(387	)
Shares withheld for taxes on vested restricted shares		(21	)		(32	)
Dividends paid		(108	)		(319	)
Reduction of long-term borrowings		(1,497	)		(6	)
Finance lease and financing obligation payments		(72	)		(88	)
Proceeds from stock option exercises		—			2
Proceeds from financing obligations		4			11
Net cash provided by (used in) financing activities		376			(819	)
Net increase (decrease) in cash and cash equivalents		1,216			(444	)
Cash and cash equivalents at beginning of period		723			934
Cash and cash equivalents at end of period	$	1,939		$	490
Supplemental information
Interest paid, net of capitalized interest	$	159		$	131
Income taxes paid		138			154
Property and equipment acquired through:
Finance lease liabilities		118			163
Operating lease liabilities		140			103

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 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.

In the second quarter of 2020, we completed a sale leaseback for our San Bernardino E-commerce fulfillment and distribution center. The properties were sold for $195 million and generated net proceeds of $193 million after fees. A gain of $127 million was recognized during the second quarter of 2020 and is recorded in gain on sale of real estate. An initial operating lease liability and a corresponding right of use asset of $84 million were recorded for these leased locations.

In the third quarter of 2019, we purchased leased equipment that was accounted for as a financing obligation and resulted in recognition of a $9 million gain on extinguishment of debt.

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

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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.

In the first quarter of 2020, 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 was less than cost for the quarter ended May 2, 2020. No reserve was required for the quarter ended October 31, 2020 or November 2, 2019.

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. We recorded impairment charges of $10 million in the second quarter of 2019 related to the closure of our four Off-Aisle clearance centers in Impairments, store closing, and other costs.

In the third quarter of 2020, we reclassified $22 million of assets held for sale to assets to be held and used. As of October 31, 2020, we did not have any assets held for sale.

Restructuring Reserve

The following table summarizes changes in the restructuring reserve during the nine months ended October 31, 2020:

(Dollars In Millions)	Severance
Balance - February 1, 2020	$	27
Payments and reversals		(34	)
Additions		23
Balance - October 31, 2020	$	16

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.

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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.

2. Revenue Recognition

The following table summarizes net sales by line of business:

	Three Months Ended				Nine Months Ended
(Dollars in Millions)	October 31, 2020		November 2, 2019		October 31, 2020		November 2, 2019
Women's	$	1,025	$	1,267	$	2,569	$	3,868
Home		700		639		1,840		1,786
Men's		711		899		1,672		2,538
Children's		593		649		1,257		1,565
Footwear		389		473		959		1,346
Accessories		361		431		855		1,245
Net Sales	$	3,779	$	4,358	$	9,152	$	12,348

Unredeemed gift cards and merchandise return card liabilities totaled $272 million as of October 31, 2020, $334 million as of February 1, 2020, and $252 million as of November 2, 2019. Revenue of $127 million was recognized during the current year from the February 1, 2020 ending balance.

3. Debt

Long-term debt consists of the following unsecured senior debt:

	Effective Rate			Coupon Rate			Outstanding
Maturity (Dollars in Millions)	Effective Rate			Coupon Rate			October 31, 2020		February 1, 2020		November 2, 2019
2023		3.25	%		3.25	%	$	350	$	350	$	350
2023		4.78	%

Price	49.64	EPS	4
Shares	159	P/E	11
MCap	7,893	P/FCF	8
Net Debt	1,510	EBIT	825
TEV	9,403	TEV/EBIT	11
TTM 2019-11-02, in MM, except price, ratios

10-Q	2020-10-31	Filed 2020-12-03
10-Q	2020-08-01	Filed 2020-09-03
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	2020-11-17
8-K	2020-10-20
8-K	2020-09-15
8-K	2020-09-08
8-K	2020-08-18
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

EX-31.1	kss-ex311_8.htm
EX-31.2	kss-ex312_7.htm
EX-32.1	kss-ex321_9.htm
EX-32.2	kss-ex322_6.htm

KSS 10Q Quarterly Report

Kohl's Earnings 2020-10-31