KOHLS Corp
For the period ended Nov 2, 2024. Filed Dec 5, 2024.
View on SEC.govAbout this filing
A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Nov 2, 2024 · Filed Dec 5, 2024
KSS$23.04-3.6%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-08-03; filed 2024-09-05.
0000950170-24-103988
Item 2. Management's Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2024-11-02; filed 2024-12-05.
0000950170-24-133680
Item 2. Management's Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 88 previous paragraphs and 89 current paragraphs.
49 unchanged; 31 reworded; 9 added; 7 removed; 1 previous and 0 current paragraphs rearranged.
Tables are not compared: 11 previous and 11 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (9)
Current report
Inventory was $4.1 billion, a decrease of 3% to last year.
Current report
Operating cash flow was a use of $195 million.
Current report
Net sales decreased 8.8% in the third quarter of 2024 and 6.1% year to date 2024.
Current report
As it relates to our credit business and recent regulatory developments, on March 5, 2024, the Consumer Financial Protection Bureau released a final rule reducing the safe harbor dollar amount for credit card late fees and eliminating the automatic annual inflation adjustment to such safe harbor dollar amount. This rule could adversely impact Kohl’s credit card revenues, particularly if our mitigation efforts are not successful and/or if consumer behavior changes in response to our mitigation strategies or the rule itself.
Current report
While the rule had an original effective date of May 14, 2024 industry organizations challenged the rule, and on May 10, 2024, the United States District Court for the Northern District of Texas granted a preliminary injunction, staying implementation of the rule. As of November 2, 2024, this injunction remains in effect. The ultimate outcome of this legal challenge, including its impact on the rule’s effectiveness and implementation, remains uncertain.
Current report
We are actively pursuing various mitigation strategies should the rule become effective, including scaling our recently launched co-brand card and implementing other initiatives with Capital One, our credit partner. We continue to closely monitor developments on the issue and assess the potential impacts of the rule on our business.
Current report
Operating activities generated $52 million of cash year to date 2024 compared to $379 year to date 2023. Operating cash flow decreased primarily due to lower net income and the timing of payments year over year.
Current report
Financing activities generated $302 million of cash year to date 2024 and $149 million of cash year to date 2023.
Current report
Cash dividend payments were $166 million ($1.50 per share) year to date 2024 compared to $165 million ($1.50 per share) year to date 2023.
Removed paragraphs (7)
Previous report
Inventory was $3.2 billion, a decrease of 9% to last year.
Previous report
Operating cash flow was $254 million as compared to $430 million in the prior year.
Previous report
Long-term debt was reduced by $113 million through the redemption of the remaining 9.50% notes due May 15, 2025.
Previous report
Net sales decreased 4.2% in the second quarter of 2024 and 4.7% year to date 2024.
Previous report
As it relates to our credit business and recent regulatory developments, on March 5, 2024, the Consumer Financial Protection Bureau finalized a rule lowering the safe harbor dollar amount credit card companies can charge for late fees for a missed payment. Unless ultimately blocked by court order prior to becoming effective, the rule reduces the typical amount of late fees that can be charged, which could have a negative impact on Kohl’s credit card revenues, particularly if Kohl’s steps to mitigate the impact of such rule are not successful. 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.
Previous report
Financing activities generated $38 million of cash in the first half of 2024 and $158 million of cash in the first half of 2023.
Previous report
Cash dividend payments were $111 million ($1.00 per share) in the first half of 2024 compared to $110 million ($1.00 per share) in the first half of 2023.
Reworded paragraphs (31)
Previous wording
For purposes of the following discussion, unless noted, all references to "the quarter” and “the second quarter” are for the three fiscal months (13 weeks) ended August 3, 2024 or July 29, 2023. References to "year to date" and "first half" are for the six fiscal months (26 weeks) ended August 3, 2024 or July 29, 2023.
Current wording
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 November 2, 2024 or October 28, 2023. References to "the second quarter" are for the three fiscal months (13 weeks) ended August 3, 2024 or July 29, 2023. References to the "first half" are for the six fiscal months (26 weeks) ended August 3, 2024 or July 29, 2023. References to "year to date" are for the nine fiscal months (39 weeks) ended November 2, 2024 or October 28, 2023.
Previous wording
Kohl's is a leading omnichannel retailer operating 1,176 stores and a website (www.Kohls.com) as of August 3, 2024. 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, store size, and Sephora at Kohl's shop-in-shops ("Sephora shops"). Our website includes merchandise which is available in our stores, as well as merchandise that is available only online.
Current wording
Kohl's is a leading omnichannel retailer operating 1,178 stores and a website (www.Kohls.com) as of November 2, 2024. 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, store size, and Sephora at Kohl's shop-in-shops ("Sephora shops"). Our website includes merchandise which is available in our stores, as well as merchandise that is available only online.
Previous wording
Key financial results for the second quarter include:
Current wording
Key financial results for the third quarter include:
Previous wording
Net sales decreased 4.2%, to $3.5 billion, with comparable sales down 5.1%.
Current wording
Net sales decreased 8.8%, to $3.5 billion, with comparable sales down 9.3%.
Previous wording
Gross margin as a percentage of net sales was 39.6%, an increase of 59 basis points.
Current wording
Gross margin as a percentage of net sales was 39.1%, an increase of 20 basis points.
Previous wording
Selling, general, and administrative ("SG&A") expenses decreased 4.2%, to $1.2 billion. As a percentage of total revenue, SG&A expenses were 33.5%, a decrease of one basis point year-over-year.
Current wording
Selling, general, and administrative ("SG&A") expenses decreased 5.1%, to $1.3 billion. As a percentage of total revenue, SG&A expenses were 34.8%, an increase of 125 basis points year-over-year.
Previous wording
Operating income was $166 million compared to $163 million in the prior year. As a percentage of total revenue, operating income was 4.4%, an increase of 26 basis points year-over-year.
Current wording
Operating income was $98 million compared to $157 million in the prior year. As a percentage of total revenue, operating income was 2.7%, a decrease of 120 basis points year-over-year.
Previous wording
Net income was $66 million, or $0.59 per diluted share. This compares to net income of $58 million, or $0.52 per diluted share in the prior year.
Current wording
Net income was $22 million, or $0.20 per diluted share. This compares to net income of $59 million, or $0.53 per diluted share in the prior year.
Previous wording
For the full year 2024, which has 52 weeks compared to 53 weeks in full year 2023, the Company's guidance excludes the potential impact from credit card late fee regulatory changes in the second half of 2024. The Company currently expects the following:
Current wording
For the full year 2024, which has 52 weeks compared to 53 weeks in full year 2023, the Company currently expects the following:
Previous wording
Net sales: A decrease of (4%) to a decrease of (6%)
Current wording
Net sales: A decrease of (7%) to a decrease of (8%)
Previous wording
Comparable sales: A decrease of (3%) to a decrease of (5%)
Current wording
Comparable sales: A decrease of (6%) to a decrease of (7%)
Previous wording
Operating margin: In the range of 3.4% to 3.8%
Current wording
Operating margin: In the range of 3.0% to 3.2%
Previous wording
Diluted earnings per share: In the range of $1.75 to $2.25
Current wording
Diluted earnings per share: In the range of $1.20 to $1.50
Previous wording
The decrease in the second quarter was driven by a decrease in average transaction value of approximately 6% partially offset by an increase in transaction volume of approximately 2%. Year to date the decrease was driven by a decrease in average transaction value of approximately 4% with transaction volume approximately flat to last year.
Current wording
The decrease in the third quarter was driven by a decrease in average transaction value of approximately 6% with transaction volume down approximately 3%. Year to date the decrease was driven by a decrease in average transaction value of approximately 5% with transaction volume down approximately 1% to last year.
Previous wording
In both the second quarter and year to date 2024, the sales decrease was seen across all lines of business, except for Accessories, as they underperformed the Company average. Accessories increased 17% in the second quarter and 19% year to date driven by Sephora sales increasing approximately 45% and 50% respectively.
Current wording
In the third quarter and year to date 2024, sales decreased across all lines of business, except for Accessories. Accessories increased approximately 5% in the third quarter and 14% year to date driven by Sephora sales increasing approximately 15% and 40% respectively.
Previous wording
Comparable sales decreased 5.1% in the second quarter of 2024 and 4.8% year to date 2024. 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 twelve months, stores that have been closed, and stores that have been relocated where square footage has changed by more than 10%.
Current wording
Comparable sales decreased 9.3% in the third quarter of 2024 and 6.4% year to date 2024. 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 twelve months, stores that have been closed, and stores that have been relocated where square footage has changed by more than 10%.
Previous wording
Digital sales decreased 4% in the second quarter of 2024 and 5% year to date 2024. Digital penetration represented 25% of net sales in the second quarter and year to date in both 2024 and 2023. 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.
Current wording
Digital sales decreased 7% in the third quarter of 2024 and 5% year to date 2024. Digital penetration represented 26% of net sales in the third quarter and year to date 2024, compared to 26% in the third quarter of 2023 and 25% year to date 2023. 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.
Previous wording
Other revenue decreased $10 million in the second quarter of 2024 and $22 million year to date 2024. The decrease in both periods is driven by increasing credit loss rates within our credit business.
Current wording
Other revenue decreased $8 million in the third quarter of 2024 and $30 million year to date 2024. The decrease in both periods was driven by our credit business, which declined in line with Net sales. Additionally, year to date the decrease was driven by increasing credit loss rates within our credit business.
Previous wording
Gross margin is calculated as net sales less cost of merchandise sold. For the second quarter of 2024, gross margin was 39.6% of net sales, an increase of 59 basis points to last year. Year to date 2024, gross margin was 39.6% of net sales, an increase of 54 basis points to last year. In both the second quarter and year to date 2024, the increase was driven by strong inventory management as our inventory was down 9% to last year, as we continue to benefit from operating with greater flexibility, as well as lower freight costs. Year to date, the increase was partially offset by elevated shrink levels.
Current wording
Gross margin is calculated as net sales less cost of merchandise sold. For the third quarter of 2024, gross margin was 39.1% of net sales, an increase of 20 basis points to last year. Year to date 2024, gross margin was 39.4% of net sales, an increase of 42 basis points to last year. In both the third quarter and year to date 2024, the increase was driven by strong inventory management resulting in fewer clearance markdowns as our inventory was down 3% to last year at the end of the third quarter as well as lower freight costs. Partially offsetting the increase in the third quarter was higher digital penetration and increased promotional activity. Year to date, the increase was partially offset by elevated shrink levels.
Previous wording
SG&A expenses decreased $54 million, or 4.2%, to $1.2 billion in the second quarter of 2024. As a percentage of revenue, SG&A leveraged by one basis point. Year to date 2024, SG&A expenses decreased $64 million, or 2.5%, to $2.5 billion. As a percentage of revenue, SG&A deleveraged by 78 basis points. The decreases in SG&A expenses for both the second quarter and year to date were primarily due to a reduction in store expenses including lower costs due to fewer Sephora shop openings and fewer store refreshes. Partially offsetting this decrease were investments in marketing and technology to support new growth initiatives.
Current wording
SG&A expenses decreased $69 million, or 5.1%, to $1.3 billion in the third quarter of 2024. As a percentage of revenue, SG&A deleveraged by 125 basis points. Year to date 2024, SG&A expenses decreased $133 million, or 3.4%, to $3.8 billion. As a percentage of revenue, SG&A deleveraged by 95 basis points. The decreases in SG&A expenses for the third quarter and year to date 2024 were due to tightly managing expenses across the organization, especially in corporate and store-related expenses. Partially offsetting the year to date decrease were investments in marketing and technology to support new growth initiatives.
Previous wording
The increase in Depreciation and amortization in the first half of 2024 was driven by increased store investments, including the Sephora shops, offset by reduced capital spending in technology.
Current wording
The decrease in Depreciation and amortization in the third quarter and year to date 2024 was primarily driven by reduced capital spending in technology. Partially offsetting the decrease in both periods were increased store investments, including Sephora shops.
Previous wording
Net interest expense decreased in the first half of 2024 due to the reduced outstanding balance on the revolving credit facility and reduced outstanding unsecured senior debt, partially offset by a $5 million loss on extinguishment of debt recognized in connection with a voluntary redemption of the remaining $113 million of outstanding 9.50% notes due May 15, 2025 completed in June 2024.
Current wording
Net interest expense decreased in the third quarter and year to date 2024 due to a lower average outstanding balance on the revolving credit facility and reduced outstanding unsecured senior debt. Year to date 2024, decreases in interest expense were partially offset by a $5 million loss on extinguishment of debt recognized in connection with a voluntary redemption of the remaining $113 million of outstanding 9.50% notes due May 15, 2025 completed in June 2024.
Previous wording
The year to date rates include the recognition of favorable discrete items in the first half of both years. Due to lower pre-tax income, the favorable discrete items had greater impact in 2024.
Current wording
The third quarter and year to date 2024 and 2023 rates reflect the recognition of favorable tax items in both years. Due to lower pre-tax income, the favorable discrete items had a greater impact in 2024.
Previous wording
We will continue to invest in the business, as we plan to invest approximately $500 million in 2024, which includes the investment in 350 impulse queuing lines, 140 small format Sephora shop openings, the launch of 200 Babies “R” Us shops, and six new store openings, including one relocation. We remain committed to the dividend, and on August 13, 2024, our Board of Directors declared a quarterly cash dividend of $0.50 per share. The dividend will be paid on September 25, 2024 to all shareholders of record at the close of business on September 11, 2024. In June 2024, we completed a voluntary redemption of the remaining $113 million of outstanding 9.50% notes due May 15, 2025. We are not planning any share repurchases during the current year.
Current wording
We will continue to invest in the business, as we plan to invest approximately $500 million in 2024, which includes the investment in 140 small format Sephora shop openings, 350 impulse queuing lines, the launch of 200 Babies “R” Us shops, and six new store openings, including one relocation. We remain committed to the dividend, and on November 13, 2024, our Board of Directors declared a quarterly cash dividend of $0.50 per share. The dividend will be paid on December 24, 2024 to all shareholders of record at the close of business on December 11, 2024. In June 2024, we completed a voluntary redemption of the remaining $113 million of outstanding 9.50% notes due May 15, 2025. We are not planning any share repurchases during the current year.
Previous wording
Our period-end Cash and cash equivalents balance increased to $231 million from $204 million in the second quarter of 2023. Our Cash and cash equivalents balance includes short-term investments of $10 million and $8 million as of August 3, 2024, and July 29, 2023, 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.
Current wording
Our period-end Cash and cash equivalents balance decreased to $174 million from $190 million in the third quarter of 2023. Our Cash and cash equivalents balance includes short-term investments of $7 million and $11 million as of November 2, 2024, and October 28, 2023, 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.
Previous wording
Investing activities used $237 million of cash in the first half of 2024 and $335 million in the first half of 2023. The decrease in cash used in investing activities was primarily driven by fewer Sephora shop openings and other investments, consistent with our reduced capital expenditure plans for fiscal 2024.
Current wording
Investing activities used $363 million of cash year to date 2024 and $491 million year to date 2023. The decrease in cash used in investing activities was primarily driven by fewer Sephora shop openings and other investments, consistent with our reduced capital expenditure plans for fiscal 2024.
Previous wording
At the end of the quarter, we had a Sephora presence in over 1,000 of our stores, including 861 full size 2,500 square foot shops and 189 small format Sephora shops. In 2024, we anticipate capital expenditures of approximately $500 million, which includes the investment in 350 impulse queuing lines, 140 small format Sephora shop openings, the launch of 200 Babies “R” Us shops, and six new store openings, including one relocation.
Current wording
At the end of the quarter, we had a Sephora presence in over 1,000 of our stores, including 862 full size 2,500 square foot shops and 190 small format Sephora shops. In 2024, we anticipate capital expenditures of approximately $500 million, which includes the investment in 140 small format Sephora shop openings, 350 impulse queuing lines, the launch of 200 Babies “R” Us shops, and six new store openings, including one relocation.
Previous wording
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.
Current wording
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 our credit ratings.
Previous wording
During the first half of 2024, we drew $318 million on our credit facility compared to $475 million drawn in the first half of 2023. Borrowings under the revolving credit facility, recorded as short-term debt, had $410 million outstanding as of August 3, 2024, and had $560 million outstanding as of July 29, 2023.
Current wording
Year to date 2024, we drew $657 million on our $1.5 billion credit facility compared to $540 million drawn year to date 2023. Borrowings under the revolving credit facility, recorded as short-term debt, had $749 million outstanding as of November 2, 2024, and had $625 million outstanding as of October 28, 2023.
Previous wording
There was no cash used for treasury stock purchases in the first half of 2024 or 2023. 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 during the current year.
Current wording
There was no cash used for treasury stock purchases year to date 2024 or 2023. 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 during the current year.
Previous wording
Operating activities generated $247 million of cash in the first half of 2024 compared to $228 in the first half of 2023. Operating cash flow increased primarily due to inventory management resulting in managing receipts down 7% versus the prior year as well as an increase in accounts payable. We placed a lower percentage of our overall receipts in the early part of the buying cycle to allow for additional flexibility to chase receipts based on trending sales, establish a better flow of goods to our stores and maintain better in-stock positions, with the goal of minimizing the impact of future markdowns and out-of-stock positions.
Current wording
The decrease in our working capital and current ratio are driven by increased borrowings under the revolving credit facility and additional long-term debt due within the next year. Additionally, the decrease is driven by a decrease in inventory due to inventory management as our receipts were down 7% versus the prior year. We placed a lower percentage of our overall receipts in the early part of the buying cycle to allow for additional flexibility to chase receipts based on trending sales, establish a better flow of goods to our stores, and maintain better in-stock positions, with the goal of minimizing the impact of future markdowns and out-of-stock positions.
Rearranged previous paragraphs (1)
Previous report — wording carried elsewhere
The decrease in our working capital and current ratio are primarily due to a decrease in inventory due to inventory management as our receipts were down 7% versus the prior year.