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 $263 million as of November 2, 2024, $327 million as of February 3, 2024, and $279 million as of October 28, 2023. In the third quarter of 2024 and 2023, net sales of $19 million and $22 million, respectively, were recognized from gift cards redeemed in the current period and issued in prior years. Year to date 2024 and 2023, net sales of $107 million and $126 million, respectively, were recognized during the current period from gift cards redeemed during the current year and issued in prior years.

3. Debt

Outstanding borrowings under the $1.5 billion revolving credit facility, recorded as short-term debt, were $749 million as of November 2, 2024, $92 million as of February 3, 2024, and $625 million as of October 28, 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 $1.3 billion at November 2, 2024, $1.3 billion at February 3, 2024, and $1.3 billion at October 28, 2023.

In June 2024, we completed a voluntary redemption of the remaining $113 million of outstanding 9.50% notes due May 15, 2025. We recognized a $5 million loss on extinguishment of debt in net interest expense during the second quarter of 2024, which was primarily a make whole premium paid to holders as a result of the redemption.

Our various debt agreements contain covenants including limitations on additional indebtedness and certain financial tests. As of November 2, 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 thenine months ended November 2, 2024:

In 2019, we issued 1,747,441 stock warrants. All 1,747,441 shares were vested and unexercised as of November 2, 2024.

5. Contingencies

With respect to Kelley v. Boneparth, No. 2:24-cv-00604-LA (E.D. Wis.), described in Note 5, Contingencies, of the Notes to our Consolidated Financial Statements included in our Quarterly Report on Form 10-Q for the fiscal quarter ended August 3, 2024, the plaintiff filed a notice of voluntary dismissal on November 15, 2024.

With respect to the securities putative class action, Shanaphy v. Kohl’s Corporation, No. 2:22-cv- 01016-LA (E.D. Wis.), described in Note 7, Contingencies, of our Annual Report on Form 10-K for the fiscal year ended February 3, 2024, the Court granted the Company’s motion to dismiss on September 30, 2024. The Court set a deadline of November 1, 2024, for the plaintiff to file a motion for leave to file a second amended complaint to the extent the plaintiff believed he could cure the complaint’s deficiencies through amendment. The plaintiff did not file a motion for leave to amend the complaint by the Court’s deadline. On November 5, 2024, the Court entered a judgment in favor of the Company.

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 third quarter of 2024 was (2.8%) compared to 13.3% for the third quarter of 2023. Year to date, the rate is 1.3% and 16.4% for 2024 and 2023, respectively. The third quarter and year to date rates reflect the recognition of favorable tax items in both years.

7. Net Income Per Share

Basic net income per share is net income divided by the average number of common shares outstanding during the period. Diluted net income per share includes incremental shares assumed for stock-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 earnings per share if their effect would be anti-dilutive.

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

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

8. Subsequent Events

On November 13, 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 December 24, 2024, to all shareholders of record at the close of business on December 11, 2024.

On November 25, 2024, the Company announced that Thomas A. Kingsbury will step down as Chief Executive Officer, effective January 15, 2025. Mr. Kingsbury will continue to serve in an advisory role to the new Chief Executive Officer and retain his position on the Board of Directors through his retirement on May 10, 2025. The Company further announced that, on November 22, 2024, the Board of Directors appointed J. Ashley Buchanan to serve as Chief Executive Officer and a member of the Board of Directors, effective January 15, 2025.