KOHLS Corp

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 3, 2024 (Commission File No. 1-11084) as filed with the Securities and Exchange Commission ("SEC").

Due to the seasonality of the business of Kohl’s Corporation (the “Company,” “Kohl’s,” “we,” “our,” or “us”), results for any quarter are not necessarily indicative of the results that may be achieved for a full fiscal year.

We operate as a single business unit.

Recent Accounting Pronouncements

Accounting Standards Issued and Adopted

There are no recently adopted accounting pronouncements that had a material impact on our financial statements.

Accounting Standards Issued but not yet Effective

2. Revenue Recognition

The following table summarizes Net sales by line of business:

Unredeemed gift cards and merchandise return card liabilities totaled $294 million as of May 4, 2024, $327 million as of February 3, 2024, and $317 million as of April 29, 2023. In the first quarter of 2024 and 2023, net sales of $57 million and $68 million, respectively, were recognized from gift cards redeemed in the current period and issued in prior years.

3. Debt

Outstanding borrowings under the revolving credit facility, recorded as short-term debt, were $355 million as of May 4, 2024, $92 million as of February 3, 2024, and $765 million as of April 29, 2023.

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

Our estimated fair value of unsecured senior long-term debt is determined using Level 1 inputs, using financial instruments with unadjusted, quoted prices listed on active market exchanges. The estimated fair value of our unsecured senior debt was $1.4 billion at May 4, 2024, $1.3 billion at February 3, 2024, and $1.3 billion at April 29, 2023.

Our various debt agreements contain covenants including limitations on additional indebtedness and certain financial tests. As of May 4, 2024, we were in compliance with all covenants of the various debt agreements.

4. Stock-Based Awards

The following table summarizes our stock-based awards activity for the three months ended May 4, 2024:

In 2019, we issued 1,747,441 stock warrants. All 1,747,441 shares were vested and unexercised as of May 4, 2024.

5. Contingencies

Note 7, Contingencies, of the notes to our consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended February 3, 2024, contains a description of an ongoing legal proceeding, as to which there have been no material developments as of May 4, 2024.

On May 16, 2024, David Kelley, an alleged shareholder of the Company, filed a shareholder derivative lawsuit in the U.S. District Court for the Eastern District of Wisconsin purportedly on behalf of the Company and against current and former members of the Board of Directors of the Company as Defendants, and the Company as Nominal Defendant. Kelley v. Boneparth, No. 2:24-cv-00604-LA (E.D. Wis.). The plaintiff asserts claims for breach of fiduciary duty and unjust enrichment and seeks declaratory and injunctive relief, compensatory damages, restitution, fees, and costs. The complaint makes similar allegations to the shareholder class action described in Note 7, Contingencies, of the notes to our consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended February 3, 2024. In particular, the complaint alleges that the Defendants breached their fiduciary duties to the Company and were unjustly enriched by causing or allowing the Company to disseminate allegedly false or misleading statements regarding (1) the conception, execution, and outcomes of the Company’s strategic plan announced on October 20, 2020, (2) the Company’s internal controls over financial reporting, disclosure controls, and corporate governance mechanisms, and (3) the Company’s consideration of acquisition offers. Defendants deny the allegations in the complaint and intend to vigorously defend against them. Due to the early stages of this matter, the Company is unable to estimate a reasonably possible range of loss, if any, that may result from this matter.

In addition to what is noted above, we are subject to certain legal proceedings and claims arising out of the ordinary conduct of our business. In the opinion of management, the outcome of these proceedings and claims will not have a material adverse effect on our Consolidated Financial Statements.

6. Income Taxes

The effective income tax rate for the first quarter of 2024 was 32.5% compared to 3.8% for the first quarter of 2023. In both periods, the tax rate was driven by the recognition of favorable tax items. The impact of the 2024 benefit of the favorable tax items, when compared to a pre-tax loss, results in increasing the tax rate from the statutory rate. The impact of the 2023 benefit of the favorable tax items, when compared to pre-tax income, results in decreasing the tax rate from the statutory rate.

7. 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. The potentially dilutive shares outstanding during the period include unvested restricted stock units, unvested restricted stock awards, and warrants, which utilize the treasury stock method, as well as unvested performance share units that utilize the contingently issuable share method. Potentially dilutive shares are excluded from the computations of diluted (loss) earnings per share ("EPS") if their effect would be anti-dilutive.

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

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:

8. Subsequent Events

On May 14, 2024, we sent notification of a make whole call to noteholders to redeem the remaining $113 million of outstanding 9.50% notes due May 15, 2025, which will result in an approximately $4.5 million pre-tax charge. The redemption will be completed on June 13, 2024.

On May 15, 2024, the Board of Directors of Kohl's Corporation declared a quarterly cash dividend of $0.50 per share. The dividend will be paid on June 26, 2024, to all shareholders of record at the close of business on June 12, 2024.