Published: 2023-11-30 00:00:00 ET

 

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 28, 2023

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 (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 24, 2023 Common Stock, Par Value $0.01 per Share, 110,712,124 shares outstanding.

 

 

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KOHL’S CORPORATION

INDEX

 

PART I	FINANCIAL INFORMATION	3
Item 1.	Financial Statements:	3
	Consolidated Balance Sheets	3
	Consolidated Statements of Operations	4
	Consolidated Statements of Changes in Shareholders' Equity	5
	Consolidated Statements of Cash Flows	6
	Notes to Consolidated Financial Statements	7
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	14
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	21
Item 4.	Controls and Procedures	21
PART II	OTHER INFORMATION	23
Item 1.	Legal Proceedings	23
Item 1A.	Risk Factors	23
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	23
Item 5.	Other Information	23
Item 6.	Exhibits	24
	Signatures	25

 

 

 

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

KOHL’S CORPORATION

CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

(Dollars in Millions)	October 28, 2023	January 28, 2023	October 29, 2022
Assets
Current assets:
Cash and cash equivalents	$190	$153	$194
Merchandise inventories	4,239	3,189	4,874
Other	291	394	366
Total current assets	4,720	3,736	5,434
Property and equipment, net	7,861	7,926	8,117
Operating leases	2,492	2,304	2,318
Other assets	394	379	365
Total assets	$15,467	$14,345	$16,234
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$1,918	$1,330	$2,014
Accrued liabilities	1,324	1,220	1,436
Borrowings under revolving credit facility	625	85	668
Current portion of:
Long-term debt	111	275	164
Finance leases and financing obligations	84	94	95
Operating leases	94	111	109
Total current liabilities	4,156	3,115	4,486
Long-term debt	1,638	1,637	1,747
Finance leases and financing obligations	2,714	2,786	2,791
Operating leases	2,780	2,578	2,595
Deferred income taxes	107	129	165
Other long-term liabilities	321	337	354
Shareholders’ equity:
Common stock	2	4	4
Paid-in capital	3,514	3,479	3,319
Treasury stock, at cost	(2,568)	(13,715)	(13,551)
Retained earnings	2,803	13,995	14,324
Total shareholders’ equity	$3,751	$3,763	$4,096
Total liabilities and shareholders’ equity	$15,467	$14,345	$16,234

 

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 28, 2023	October 29, 2022	October 28, 2023	October 29, 2022
Net sales	$3,843	$4,052	$10,876	$11,386
Other revenue	211	225	644	693
Total revenue	4,054	4,277	11,520	12,079
Cost of merchandise sold	2,349	2,541	6,638	7,013
Operating expenses:
Selling, general, and administrative	1,360	1,334	3,902	3,910
Depreciation and amortization	188	202	562	608
Operating income	157	200	418	548
Interest expense, net	89	81	262	226
Income before income taxes	68	119	156	322
Provision for income taxes	9	22	25	68
Net income	$59	$97	$131	$254
Net income per share:
Basic	$0.54	$0.82	$1.19	$2.05
Diluted	$0.53	$0.82	$1.18	$2.02

 

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 28, 2023	October 29, 2022	October 28, 2023	October 29, 2022
Common stock
Balance, beginning of period	$2	$4	$4	$4
Stock-based awards	—	—	—	—
Retirement of treasury stock	—	—	(2)	—
Balance, end of period	$2	$4	$2	$4
Paid-in capital
Balance, beginning of period	$3,502	$3,406	$3,479	$3,375
Stock-based awards	12	13	35	44
Accelerated share repurchase pending final settlement	—	(100)	—	(100)
Balance, end of period	$3,514	$3,319	$3,514	$3,319
Treasury stock
Balance, beginning of period	$(2,569)	$(13,151)	$(13,715)	$(12,975)
Treasury stock purchases	—	(400)	—	(558)
Stock-based awards	—	(1)	(13)	(21)
Dividends paid	1	1	3	3
Retirement of treasury stock	—	—	11,157	—
Balance, end of period	$(2,568)	$(13,551)	$(2,568)	$(13,551)
Retained earnings
Balance, beginning of period	$2,800	$14,285	$13,995	$14,257
Net income	59	97	131	254
Dividends paid	(56)	(58)	(168)	(187)
Retirement of treasury stock	—	—	(11,155)	—
Balance, end of period	$2,803	$14,324	$2,803	$14,324
Total shareholders' equity, end of period	$3,751	$4,096	$3,751	$4,096
Common stock
Shares, beginning of period	161	377	378	377
Stock-based awards	—	—	—	—
Retirement of treasury stock	—	—	(217)	—
Shares, end of period	161	377	161	377
Treasury stock
Shares, beginning of period	(50)	(249)	(267)	(246)
Treasury stock purchases	—	(11)	—	(14)
Retirement of treasury stock	—	—	217	—
Shares, end of period	(50)	(260)	(50)	(260)
Total shares outstanding, end of period	111	117	111	117
Dividends paid per common share	$0.50	$0.50	$1.50	$1.50

 

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 28, 2023	October 29, 2022
Operating activities
Net income	$131	$254
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization	562	608
Share-based compensation	31	37
Deferred income taxes	(25)	(41)
Non-cash lease expense	70	81
Other non-cash items	13	12
Changes in operating assets and liabilities:
Merchandise inventories	(1,046)	(1,802)
Other current and long-term assets	66	102
Accounts payable	588	331
Accrued and other long-term liabilities	58	76
Operating lease liabilities	(69)	(83)
Net cash provided by (used in) operating activities	379	(425)
Investing activities
Acquisition of property and equipment	(495)	(733)
Proceeds from sale of real estate	15	31
Other	(11)	—
Net cash used in investing activities	(491)	(702)
Financing activities
Net borrowings under revolving credit facility	540	668
Treasury stock purchases	—	(658)
Shares withheld for taxes on vested restricted shares	(13)	(21)
Dividends paid	(165)	(184)
Repayment of long-term borrowings	(164)	—
Finance lease and financing obligation payments	(68)	(81)
Proceeds from financing obligations	19	9
Proceeds from stock option exercises	—	1
Net cash provided by (used in) financing activities	149	(266)
Net increase (decrease) in cash and cash equivalents	37	(1,393)
Cash and cash equivalents at beginning of period	153	1,587
Cash and cash equivalents at end of period	$190	$194
Supplemental information
Interest paid, net of capitalized interest	$229	$190
Income taxes paid	41	53

 

See accompanying Notes to Consolidated Financial Statements

 

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KOHL’S CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

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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 third quarter” are for the three fiscal months (13 weeks) ended October 28, 2023 or October 29, 2022. References to "year to date" are for the nine fiscal months (39 weeks) ended October 28, 2023 or October 29, 2022. References to "the first quarter" are for the three fiscal months (13 weeks) ended April 29, 2023 or April 30, 2022. References to "the second quarter" are for the three fiscal months (13 weeks) ended July 29, 2023 or July 30, 2022.

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 include the information under “2023 Financial and Capital Allocation Outlook,” as well as statements 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 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 2022 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

Kohl's is a leading omnichannel retailer operating 1,170 stores and a website (www.Kohls.com) as of October 28, 2023. Our Kohl's stores and website sell moderately-priced private 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 and store size, as well as Sephora shops. 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:

Our Strategy

Kohl's is focused on delivering long-term shareholder value by driving improved sales and profitability through four key strategies: driving top line growth, delivering a long-term operating margin of 7% to 8%, maintaining disciplined capital management, and sustaining an agile, accountable, and inclusive culture. In 2023, the Company outlined the

 

 

 

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following priorities to drive this strategy: enhancing the customer experience, accelerating and simplifying our value strategies, managing inventory and expenses with discipline, and strengthening the balance sheet.

2023 Financial and Capital Allocation Outlook

For the full year 2023, the Company updates its financial outlook and currently expects the following:

Results of Operations

Total Revenue

 

	Three Months Ended			Nine Months Ended
(Dollars in Millions)	October 28, 2023	October 29, 2022	Change	October 28, 2023	October 29, 2022	Change
Net sales	$3,843	$4,052	$(209)	$10,876	$11,386	$(510)
Other revenue	211	225	(14)	644	693	(49)
Total revenue	$4,054	$4,277	$(223)	$11,520	$12,079	$(559)

 

Net sales decreased 5.2% in the third quarter of 2023 and 4.5% year to date 2023.

Net sales includes revenue from the sale of merchandise, net of expected returns and deferrals due to future performance obligations, and shipping revenue.

Comparable sales is a measure that highlights the performance of our stores and digital channel by measuring the change in sales for a period over the comparable, prior-year period of equivalent length. Comparable sales includes all store and digital sales, except sales from stores open less than 12 months, stores that have been closed, and stores that have been relocated where square footage has changed by more than 10%. We measure the change in digital sales by including all sales initiated online or through mobile applications, including omnichannel transactions which are fulfilled through our stores.

We measure digital penetration as digital sales over net sales. These amounts do not take into consideration fulfillment node, digital returns processed in stores, and coupon behaviors.

 

 

 

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Comparable sales and digital penetration measures vary across the retail industry. As a result, our comparable sales calculation and digital penetration may not be consistent with the similarly-titled measures reported by other companies.

Other revenue, which is primarily our credit business, decreased $14 million in the third quarter and $49 million year to date 2023. The decrease is driven by payment trend declines and increasing credit loss rates.

As it relates to our credit business and recent regulatory developments, the Consumer Financial Protection Bureau ("CFPB") has proposed lowering the late fees credit card companies can charge. If enacted as proposed, it would have an impact on our credit card revenues if unmitigated. We are actively pursuing various initiatives to mitigate the effects of this potential ruling including scaling our recently launched co-brand card and other various initiatives with Capital One, our credit partner. We are closely monitoring developments on the issue.

Cost of Merchandise Sold and Gross Margin

 

	Three Months Ended				Nine Months Ended
(Dollars in Millions)	October 28, 2023	October 29, 2022	Change		October 28, 2023	October 29, 2022	Change
Net sales	$3,843	$4,052	$(209)		$10,876	$11,386	$(510)
Cost of merchandise sold	2,349	2,541	(192)		6,638	7,013	(375)
Gross margin	$1,494	$1,511	$(17)		$4,238	$4,373	$(135)
Gross margin as a percent of net sales	38.9%	37.3%	158	bps	39.0%	38.4%	56	bps

 

Cost of merchandise sold includes the total cost of products sold, including product development costs, net of vendor payments other than reimbursement of specific, incremental, and identifiable costs; inventory shrink; markdowns; freight expenses associated with moving merchandise from our vendors to our distribution centers; shipping expenses for digital sales; and terms cash discount. Our cost of merchandise sold may not be comparable with that of other retailers because we include distribution center and buying costs in selling, general, and administrative expenses while other retailers may include these expenses in cost of merchandise sold.

Gross margin is calculated as net sales less cost of merchandise sold. For the third quarter of 2023, gross margin was 38.9% of net sales, an increase of 158 basis points to last year. Year to date 2023, gross margin was 39.0% of net sales, an increase of 56 basis points to last year. The increase in both the third quarter and year to date 2023 was driven by lower freight costs, reduced digital-related cost of shipping, and the simplification of our value strategies, partially offset by higher product costs. Additionally, year to date 2023 we continue to experience higher shrink.

Selling, General, and Administrative Expense (“SG&A”)

 

	Three Months Ended				Nine Months Ended
(Dollars in Millions)	October 28, 2023	October 29, 2022	Change		October 28, 2023	October 29, 2022	Change
SG&A	$1,360	$1,334	$26		$3,902	$3,910	$(8)
As a percent of total revenue	33.5%	31.2%	235	bps	33.9%	32.4%	150	bps

 

SG&A includes compensation and benefit costs (including stores, corporate, buying, and distribution centers); occupancy and operating costs of our retail, distribution, and corporate facilities; freight expenses associated with moving merchandise from our distribution centers to our retail stores and among distribution and retail facilities other than expenses to fulfill digital sales; marketing expenses, offset by vendor payments for reimbursement of specific, incremental, and identifiable costs; expenses related to our credit card operations; and other administrative revenues and expenses. We do not include depreciation and amortization in SG&A. The classification of these expenses varies across the retail industry.

 

 

 

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Many of our expenses, including store payroll and distribution costs, are variable in nature. These costs generally increase as sales increase and decrease as sales decrease. We measure both the change in these variable expenses and the expense as a percent of revenue. If the expense as a percent of revenue decreased from the prior year, the expense "leveraged". If the expense as a percent of revenue increased over the prior year, the expense "deleveraged".

The following table summarizes the changes in SG&A by expense type:

 

	Three Months Ended	Nine Months Ended
(Dollars in Millions)	October 28, 2023	October 28, 2023
Marketing	$(28)	$(59)
Distribution	(12)	(31)
Corporate and other	34	29
Store expenses	32	53
Total Increase (Decrease)	$26	$(8)

 

SG&A expenses increased $26 million, or 1.9%, to $1.4 billion in the third quarter of 2023. As a percentage of revenue, SG&A deleveraged by 235 basis points. Year to date 2023, SG&A expenses decreased $8 million, or 0.2%, to $3.9 billion. As a percentage of revenue, SG&A deleveraged by 150 basis points. During the quarter and year to date 2023 increases in store expenses was driven by continued investments in Sephora openings, increased wages, and other store-related expenses. Additionally, general corporate costs increased for both the third quarter and year to date 2023. Year to date 2023, the increase in corporate costs was partially offset by expenses related to the proxy contest and sale process that occurred in the first half of last year. Partially offsetting these SG&A increases were lower marketing and distribution costs. For both the third quarter and year to date 2023, marketing investments were down across all channels and distribution costs decreased due to lower receipts, sales declines, and increased productivity.

Other Expenses

 

	Three Months Ended			Nine Months Ended
(Dollars in Millions)	October 28, 2023	October 29, 2022	Change	October 28, 2023	October 29, 2022	Change
Depreciation and amortization	$188	$202	$(14)	$562	$608	$(46)
Interest expense, net	89	81	8	262	226	36

 

The decrease in depreciation and amortization in the third quarter and year to date 2023 was primarily driven by reduced capital spending in technology.

Net interest expense increased in the third quarter and year to date 2023 due to borrowing under the revolving credit facility and Sephora related lease amendments.

Income Taxes

 

	Three Months Ended			Nine Months Ended
(Dollars in Millions)	October 28, 2023	October 29, 2022	Change	October 28, 2023	October 29, 2022	Change
Provision for income taxes	$9	$22	$(13)	$25	$68	$(43)
Effective tax rate	13.3%	18.3%		16.4%	21.1%

The third quarter and year to date rates reflect the recognition of favorable tax items in both 2023 and 2022. Due to lower pre-tax income in 2023, the favorable discrete items will have greater impact in 2023.

 

 

 

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Seasonality and Inflation

Our business, like that of other retailers, is subject to seasonal influences. Sales and income are typically higher during the back-to-school and holiday seasons. Because of the seasonality of our business, results for any quarter are not necessarily indicative of the results that may be achieved for a full fiscal year.

We expect that our operations will continue to be influenced by general economic conditions, including food, fuel and energy prices, employment rates, wage inflation, and costs to source our merchandise, including tariffs. There can be no assurances that such factors will not impact our business in the future.

Liquidity and Capital Resources

Capital Allocation

Our capital allocation strategy is to invest to maximize our overall long-term return and maintain a strong balance sheet, with a long-term objective of achieving an investment grade rating. We follow a disciplined approach to capital allocation based on the following priorities: first we invest in our business to drive long-term profitable growth; second we pay a quarterly dividend; and third we return excess cash to shareholders through our share repurchase program. In addition, when appropriate, we will complete debt reduction transactions.

We will continue to invest in the business, as we plan to invest towards the lower end of $600 to $650 million in 2023, including the expansion of the Sephora shops and store refresh activity. We remain committed to the dividend, and on November 7, 2023, our Board of Directors declared a quarterly cash dividend of $0.50 per share. The dividend will be paid on December 20, 2023 to all shareholders of record at the close of business on December 6, 2023. Last, we retired $164 million of notes due in February 2023, and plan on retiring $111 million of notes due December 2023 when they mature. We are not planning any share repurchases until our balance sheet is strengthened on a path towards the long term target leverage ratio of 2.5 times adjusted earnings before interest, taxes, depreciation, amortization, and rent ("EBITDAR") (utilizing an eight times cash rent calculation for lease obligations).

Our period-end cash and cash equivalents balance decreased to $190 million from $194 million in the third quarter of 2022. Our cash and cash equivalents balance includes short-term investments of $11 million and $8 million as of October 28, 2023, and October 29, 2022, respectively. Our investment policy is designed to preserve principal and liquidity of our short-term investments. This policy allows investments in large money market funds or in highly rated direct short-term instruments. We also place dollar limits on our investments in individual funds or instruments.

The following table presents our primary uses and sources of cash:

 

Cash Uses		Cash Sources
• Operational needs, including salaries, rent, taxes, and other operating costs • Inventory • Capital expenditures • Dividend payments • Debt reduction • Share repurchases		• Cash flow from operations • Line of credit under our revolving credit facility • Issuance of debt

 

 

 

 

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	Nine Months Ended
(Dollars in Millions)	October 28, 2023	October 29, 2022	Change
Net cash provided by (used in):
Operating activities	$379	$(425)	$804
Investing activities	(491)	(702)	211
Financing activities	149	(266)	415

 

Operating Activities

Our operating cash outflows generally consist of payments to our employees for wages, salaries and other employee benefits, payments to our merchandise vendors for inventory (net of vendor allowances), payments to our shipping carriers, and payments to our landlords for rent. Operating cash outflows also include payments for income taxes and interest payments on our debt borrowings.

Operating activities generated $379 million of cash year to date 2023 compared to $425 million of cash used year to date 2022. Operating cash flow increased year over year due to strong inventory management in 2023.

Investing Activities

Our investing cash outflows include payments for capital expenditures, including investments in new and existing stores, improvements to supply chain, and technology costs. Our investing cash inflows are generally from proceeds from sales of property and equipment.

Investing activities used $491 million of cash year to date 2023 and $702 million year to date 2022. The decrease was primarily driven by fewer rollouts of Sephora shop build-outs and store refreshes undertaken year to date 2023, consistent with our capital expenditure plans for fiscal 2023.

Year to date 2023, we opened 251 full size Sephora shops and 41 small format shops. At the end of the quarter, we had a Sephora presence in over 900 of our stores, including 857 full size 2,500 square foot shops and 46 small format Sephora shops.

Financing Activities

Our financing strategy is to ensure adequate liquidity and access to capital markets. We also strive to maintain a balanced portfolio of debt maturities, while minimizing our borrowing costs. Our ability to access the public debt market has provided us with adequate sources of liquidity. Our continued access to these markets depends on multiple factors, including the condition of debt capital markets, our operating performance, and maintaining strong credit ratings.

During the first quarter of 2023, S&P downgraded our senior unsecured credit rating from BB+ to BB and Moody's downgraded our rating from Ba2 to Ba3 while both also revised their outlook to negative. While Fitch reaffirmed our credit rating, they also revised their outlook to negative.

As of October 28, 2023, our senior unsecured credit ratings and outlook were as follows:

 

	Moody’s	S&P	Fitch
Long-term debt	Ba3	BB	BBB-
Outlook	Negative	Negative	Negative

 

 

 

 

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As a result of the downgrades, the interest rate on our 3.375% notes due May 2031 and 9.50% notes due May 2025 increased 50 basis points in May 2023 due to the coupon adjustment provisions within these notes. In 2022, our credit rating was also downgraded which resulted in the interest rates increasing 75 basis points, of which 25 basis points was effective in 2022 and the remaining 50 basis points became effective in May 2023. In total, the interest rate of both these notes have increased 125 basis points since their issuance. If our credit ratings are lowered further, our ability to access the public debt markets, our cost of funds, and other terms for new debt issuances could be adversely impacted. Each of the credit rating agencies reviews its rating periodically and there is no guarantee our current credit ratings will remain the same.

The majority of our financing activities generally include proceeds and/or repayments of long-term debt, dividend payments, and repurchases of common stock. Financing cash outflows also include payments to our landlords for leases classified as financing leases and financing obligations.

Financing activities generated $149 million of cash year to date 2023 and used $266 million of cash year to date 2022.

During the year, we drew $540 million on our credit facility. As of October 28, 2023, outstanding borrowings under the revolving credit facility were $625 million and were recorded as short-term debt. As of October 29, 2022, outstanding borrowings under our previous credit agreement were $668 million.

In February 2023, $164 million in aggregate principal amount of our 3.25% notes matured and was repaid.

There was no cash used for treasury stock purchases year to date 2023 compared to $658 million used year to date 2022. Share repurchases are discretionary in nature. The timing and amount of repurchases are based upon available cash balances, our stock price, and other factors. As previously noted, we are not planning any share repurchases until our balance sheet is strengthened on a path towards the long term target leverage ratio of 2.5 times adjusted EBITDAR (utilizing an eight times cash rent calculation for lease obligations).

Cash dividend payments were $165 million ($1.50 per share) year to date 2023 compared to $184 million ($1.50 per share) year to date 2022.

Key Financial Ratios

Key financial ratios that provide certain measures of our liquidity are as follows:

 

(Dollars in Millions)	October 28, 2023	October 29, 2022
Working capital	$564	$948
Current ratio	1.14	1.21

 

Our working capital and inventory levels typically build throughout the fall, peaking during the November and December holiday selling season.

The decrease in our working capital and current ratio is primarily due to a decrease in inventory.

Debt Covenant Compliance

Our senior secured, asset based revolving credit facility contains customary events of default and financial, affirmative and negative covenants, including but not limited to, a springing financial covenant relating to our fixed charge coverage ratio and restrictions on indebtedness, liens, investments, asset dispositions, and restricted payments. As of October 28, 2023, we were in compliance with all covenants and expect to remain in compliance during the remainder of 2023.

 

 

 

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Contractual Obligations

There have been no significant changes in the contractual obligations disclosed in our 2022 Form 10-K other than borrowings under our revolving credit facility, which have been disclosed in Note 3 of the Consolidated Financial Statements and discussed under "Liquidity and Capital Resources - Financing Activities."

Off-Balance Sheet Arrangements

We have not provided any financial guarantees arising from arrangements with unconsolidated entities or persons as of October 28, 2023.

We have not created, and are not a party to, any special-purpose or off-balance sheet entities for the purpose of raising capital, incurring debt, or operating our business. We do not have any arrangements or relationships with entities that are not consolidated into our financial statements that are reasonably likely to materially affect our financial condition, liquidity, results of operations, or capital resources.

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect reported amounts. Management has discussed the development, selection, and disclosure of its estimates and assumptions with the Audit Committee of our Board of Directors. There have been no significant changes in the critical accounting policies and estimates discussed in our 2022 Form 10-K.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

There have been no significant changes in the market risks described in our 2022 Form 10-K.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (the “Evaluation”) at a reasonable assurance level as of the last day of the period covered by this report.

Based upon the Evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective at the reasonable assurance level. Disclosure controls and procedures are defined by Rule 13a-15(e) of the Securities Exchange Act of 1934 (the "Exchange Act") as controls and other procedures that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified by the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures.

It should be noted that the design of any system of controls is based in part upon certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving our stated goals under all potential future conditions, regardless of how remote.

 

 

 

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Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended October 28, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

 

 

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

For a description of our legal proceedings, see Note 6, Contingencies, of the notes to our Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q, which is incorporated by reference in response to this item.

Item 1A. Risk Factors

There have been no significant changes in the Risk Factors described in our 2022 Form 10-K.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

In February 2022, our Board of Directors increased the remaining share repurchase authorization under our existing share repurchase program to $3.0 billion. Purchases under the repurchase program may be made in the open market, through block trades, and other negotiated transactions. We expect to execute the share repurchase program primarily in open market transactions, subject to market conditions. There is no fixed termination date for the repurchase program, and the program may be suspended, discontinued, or accelerated at any time.

The following table contains information for shares of common stock repurchased and shares acquired from employees in lieu of amounts required to satisfy minimum tax withholding requirements upon the vesting of the employees’ stock-based compensation during the three fiscal months ended October 28, 2023:

 

(Dollars in Millions, Except per Share Data)	Total Number of Shares Purchased	Average Price Paid Per Share	Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
July 30 - August 26, 2023	6,400	$27.79	—	$2,476
August 27 - September 30, 2023	12,530	$23.45	—	$2,476
October 1 - October 28, 2023	4,095	$17.80	—	$2,476
Total	23,025	$23.65	—

 

Item 5. Other Information

Except as noted below, during the three months ended October 28, 2023, no director or Section 16 officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.

 

 

 

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Item 6. Exhibits

 

Exhibit		Description
31.1		Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2		Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS		Inline XBRL Instance Document
101.SCH		Inline XBRL Taxonomy Extension Schema
101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase
101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase
101.LAB		Inline XBRL Taxonomy Extension Label Linkbase
101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase
104		Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibits 101)

 

 

 

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

	Kohl’s Corporation (Registrant)
Date: November 30, 2023	/s/ Jill Timm
	Jill Timm On behalf of the Registrant and as Chief Financial Officer (Principal Financial Officer)

 

 

 

 

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