KOHLS Corp
For the period ended Feb 1, 2025. Filed Mar 20, 2025.
View on SEC.govAbout this filing
A company's yearly report to the SEC, with audited financial statements. It is the fullest account a company gives of its business, its finances and the risks it sees.
FY2025 · Filed Mar 20, 2025
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-K
Period ended 2024-02-03; filed 2024-03-21.
0000950170-24-034691
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-K
Period ended 2025-02-01; filed 2025-03-20.
0000950170-25-042662
Item 7. 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 140 previous paragraphs and 133 current paragraphs.
71 unchanged; 38 reworded; 23 added; 31 removed; 0 previous and 1 current paragraphs rearranged.
Tables are not compared: 11 previous and 10 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 (23)
Current report
Gross margin as a percent of net sales was 37.2%, an increase of 50 basis points.
Current report
On an adjusted non-GAAP basis, our adjusted net income was $167 million, or $1.50 per adjusted diluted share.(a)
Current report
Long-term debt was reduced by $113 million through the voluntary redemption of the remaining 9.50% notes due May 15, 2025.
Current report
Non-GAAP financial measures. Please see the “GAAP to Non-GAAP Reconciliation” for a reconciliation of net income to adjusted net income and diluted earnings per share to adjusted diluted earnings per share.
Current report
Kohl's remains committed to driving long-term shareholder value by providing our customers with great product, great value, and a great experience. To achieve this, we will offer a curated balanced assortment, reestablish Kohl’s to be a leader in value and quality, and enhance our omnichannel platform to deliver a frictionless experience to customers.
Current report
Comparable sales: A decrease of (4%) to a decrease of (6%)
Current report
Capital Expenditures: In the range of $400 to $425 million
Current report
Sales decreased across all lines of business, except for Accessories. Accessories increased approximately 9% during 2024 driven by Sephora sales increasing over 25%. Sephora sales exceeded $1.8 billion in 2024.
Current report
Other revenue decreased $54 million in 2024 due to lower credit revenue, driven by a decrease in net sales, lower revolving credit balances, and an increase in loss rates.
Current report
As it relates to our credit business and recent regulatory developments, on March 5, 2024, the Consumer Financial Protection Bureau (CFPB) 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. The rule is subject to legal challenge, and the United States District Court for the Northern District of Texas granted a preliminary injunction, staying implementation of the rule, on May 10, 2024. As of February 1, 2025, this injunction remains in effect. The ultimate outcome of this legal challenge, along with the rule’s effectiveness and implementation under the new presidential administration, remains uncertain. If implemented, this rule could adversely impact Kohl’s credit card revenues; however, we are actively pursuing various mitigation strategies should the rule become effective.
Current report
The decrease in SG&A expenses was driven by strong cost discipline across the organization. In addition, as sales declined, expenses were further reduced across stores and distribution centers. Distribution costs, which exclude payroll related to online originated orders that were shipped from our stores, were $378 million for 2024 compared to $406 million for 2023.
Current report
We recognized $76 million in Impairments, store closing, and other costs related to the closure of our San Bernardino E-commerce Fulfillment Center and 27 underperforming stores in 2024. Included in this amount was $43 million of fixed asset impairments, $11 million of lease Right of Use (“ROU”) asset impairments, $14 million of severance, and $26 million in other costs relating to the closure of these locations. The $26 million in other costs includes $32 million of costs offset by $6 million in cash proceeds related to lease termination agreements. Offsetting these costs were $18 million in non-cash lease gains, where upon the remeasurement, the reduction recorded to the lease liability was greater than the remaining value of the related ROU asset.
Current report
Net interest expense decreased in 2024 compared to 2023 due to reduced outstanding unsecured senior debt and a lower average outstanding balance on the revolving credit facility throughout the year. 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.
Current report
The effective tax rate for 2024 was lower than the effective tax rate for 2023 because of the impact of favorable results from uncertain tax positions and federal tax credits relative to consolidated book net income.
Current report
In addition to reporting our financial results in accordance with generally accepted accounting principles (GAAP) for fiscal 2024, this Annual Report on Form 10-K contains certain non-GAAP financial results, including adjusted net income and adjusted diluted earnings per share. These adjusted results exclude the gains, impairments, and other costs associated with the closing of 27 underperforming stores and our San Bernardino, California E-commerce Fulfillment Center, as we believe such costs and charges are not representative of our normal business activity. We believe these non-GAAP measures are useful, as they are more representative of our core business, enhance comparability across reporting periods and to industry peers, and align with the measures used by management to evaluate the Company’s performance. The adjusted, non-GAAP results are provided and should be evaluated in addition to, and not as an alternative for, our results reported in accordance with GAAP. Shown below is a reconciliation of each non-GAAP measure referenced throughout this report to the most comparable GAAP measure. No adjustments were made to our results for fiscal years 2023 and 2022 and therefore these results are not included in the table below. Net income was $317 million, or $2.85 per diluted share, in 2023, and a net loss of $19 million, or ($0.15) per diluted share, in 2022.
Current report
Operating activities generated cash of $648 million in 2024 compared to $1.2 billion in 2023. Operating cash flow decreased due to a lower net income and inventory increasing 2% to last year as we invested into private brand inventory. Receipts decreased 5% in 2024 compared to a decrease of 9% in 2023 due to the private brand investment.
Current report
At the end of 2024, we had a Sephora presence in over 1,000 of our stores, including 861 full size 2,500 square foot shops and 190 small format Sephora shops. We also had 350 locations with impulse queuing lines, launched 200 Babies "R" Us shops, and had six new store openings, including one relocation. In 2025, we anticipate capital expenditures of approximately $400 to $425 million, which includes the investments to complete the roll out of
Current report
Sephora, expansion of impulse queuing lines, omnichannel enhancements, and two new store openings. We will continue to invest in enhancing our omnichannel capabilities.
Current report
Financing activities used $230 million in 2024 compared to $576 million in 2023.
Current report
In 2024, we had net borrowings of $198 million on our $1.5 billion credit facility compared to net borrowings of $7 million in 2023. Borrowings under the revolving credit facility, recorded as short-term debt, had $290 million outstanding as of February 1, 2025, and had $92 million as of February 3, 2024.
Current report
Adjusted Free Cash Flow (Non-GAAP measure)
Current report
We generated $104 million of adjusted free cash flow for 2024 compared to $519 million in 2023. The decrease was primarily driven by less cash provided by operating activities due to a lower net income and inventory increasing 2% to last year as we invested into private brand inventory. Receipts decreased 5% in 2024 compared to a decrease of 9% in 2023 due to the private brand investment. Partially offsetting this was a decrease in capital expenditures related to fewer Sephora shop openings and other investments.
Current report
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.
Removed paragraphs (31)
Previous report
Gross margin as a percent of net sales was 36.7%, an increase of 347 basis points.
Previous report
Inventory was $2.9 billion, a decrease of 10% to last year, driven by managing receipts down 9% versus last year.
Previous report
Kohl's strategy is focused on delivering long-term shareholder value. To achieve this, the Company has established four overarching priorities to drive improved sales and profitability. These priorities include enhancing the customer experience, accelerating and simplifying its value strategies, managing inventory and expenses with discipline, and strengthening the balance sheet.
Previous report
Comparable sales: In the range of 0% to 2%
Previous report
Capital Expenditures: Approximately $500 million, including expansion of Sephora arrangement and other store-related investments
Previous report
The Company’s guidance includes the potential impact from credit card late fee regulatory changes in the second half of 2024.
Previous report
The sales decrease was seen across all lines of business except for Accessories, as they underperformed the Company average. Partially offsetting this decrease was a 23% increase in Accessories driven by over a 90% increase in Sephora compared to the prior year. Sephora sales exceeded $1.4 billion in 2023.
Previous report
Digital sales decreased 14% for the year as sales were impacted by the elimination of online-only promotions as we worked to simplify our value strategies. Digital penetration represented 29% of net sales in 2023.
Previous report
Other revenue decreased $47 million in 2023 driven by a decline in credit revenue due to increasing credit loss rates.
Previous report
In addition, as it relates to our credit business and recent regulatory developments, the CFPB has finalized a rule that will lower the late fees credit card companies can charge. The final rule will have a negative impact on our credit card revenues if unmitigated. We are actively pursuing various initiatives to mitigate the effects of this 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 this ruling, specifically as it relates to the timing of implementation.
Previous report
We expect gross margin to expand 40 to 50 basis points in 2024, driven by strong inventory management, lower freight expense, and continued benefits from the simplification of our value strategies.
Previous report
The decrease was primarily driven by decreased marketing investments across all channels and decreased distribution costs due to lower receipts and increased productivity. Distribution costs, which exclude payroll related to online originated orders that were shipped from our stores, were $406 million for 2023 compared to $457 million for 2022. Partially offsetting the decreases were increased store costs. Store expenses were driven by increased wages, continued investments in Sephora openings, and other store-related expenses.
Previous report
In 2024, SG&A dollars are expected to be flat to slightly down with wage inflation being offset by labor productivity improvements and marketing efficiency.
Previous report
Net interest expense increased in 2023 compared to 2022 due to borrowings under the revolving credit facility as well as Sephora related lease amendments.
Previous report
In 2021, we completed a cash tender offer and recognized a loss of $201 million from the extinguishment of debt.
Previous report
Fiscal year 2023 resulted in an income tax provision compared to an income tax benefit in fiscal year 2022 due to the pre-tax book income in fiscal year 2023 compared to the pre-tax book loss in 2022.
Previous report
(1) Amounts shown for 2023 and 2022 are GAAP as there are no adjustments to Non-GAAP. These amounts are shown for comparability purposes.
Previous report
We believe the adjusted results in the GAAP to Non-GAAP table are useful because they provide enhanced visibility into our results for the periods excluding the impact of certain items such as those included in the table. However, these non-GAAP financial measures are not intended to replace the comparable GAAP measures.
Previous report
Operating activities generated cash of $1.2 billion in 2023 compared to $282 million in 2022. Operating cash flow increased primarily due to higher net income and strong inventory management in 2023. Inventory management resulted in managing receipts, down 9% versus last 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 risk of future markdowns and out-of-stock positions.
Previous report
In 2023, we opened 254 full size Sephora shops and 45 small format shops. We now have a Sephora presence in over 900 of our stores, including 860 full size 2,500 square foot Sephora shops and 50 small format Sephora shops. In 2024, we are planning to open approximately 140 small format Sephora shops, and plan on opening the remaining Sephora shops in 2025 which will bring a Sephora presence to the entire Kohl's chain. In 2024, we anticipate capital expenditures of approximately $500 million, including the expansion of Sephora shops, the launch of Babies "R" Us, and the expansion of queuing lines to 350 stores. We will continue to invest in enhancing our omnichannel capabilities.
Previous report
Financing activities used $576 million in 2023 compared to $933 million in 2022. The decrease is driven by no treasury stock purchases occurring in 2023 partially offset by repayment of long-term borrowings.
Previous report
In January 2023, we entered into a Credit Agreement with various lenders which provides for a $1.5 billion senior secured, asset based revolving credit facility that will mature in January 2028 and replaced our existing senior unsecured revolving credit facility. The revolver is secured by substantially all of our assets other than real estate, and contains customary events of default and financial, affirmative, and negative covenants, including but not limited to, a springing financial covenant related to our fixed charge coverage ratio and restrictions on indebtedness, liens, investments, asset dispositions, and restricted payments. Outstanding borrowings under the credit facility bear interest at a variable rate based on SOFR plus the applicable margin. Borrowings under the revolving credit facility, recorded as short-term debt, had $92 million outstanding as of February 3, 2024, and had $85 million as of January 28, 2023.
Previous report
Adjusted Free Cash Flow
Previous report
The increase in our working capital and current ratio are primarily due to a reduction in our short-term debt as we repaid $275 million in short-term notes that matured as well as a reduction in accounts payable offset by a decrease in inventory due to strong inventory management.
Previous report
Capital Structure Ratio
Previous report
The following table shows our capital structure ratio (non-GAAP financial measure):
Previous report
Adjusted debt to EBITDAR is a non-GAAP financial measure which we define as our adjusted outstanding debt balance divided by EBITDAR. The decrease in our adjusted debt to EBITDAR ratio is driven by higher operating income as well as repayment of long-term debt. We provide our adjusted debt to EBITDAR ratio to our ratings agencies and our current goal is to achieve a ratio of 2.5 which demonstrates our commitment to an investment grade rating and allows us to operate with an efficient capital structure for our size, growth plans, and industry. Adjusted debt to EBITDAR is a liquidity measure and not a measure of financial performance under GAAP and should be considered in addition to, and not as a substitute for debt or other GAAP financial measures of liquidity. Our adjusted debt to EBITDAR calculation may not be comparable to similarly-titled measures reported by other companies.
Previous report
The following table includes our adjusted debt to EBITDAR calculation:
Previous report
Lease obligations presented under US GAAP are replaced with eight times cash rent for operating leases, finance leases, and financial obligations. A summary of cash rent can be found in Note 3 of the Consolidated Financial Statements. Management believes this normalizes for timing within the lease term and the impact of lease amendments triggered by our investment in the Sephora shops.
Previous report
(b)
Previous report
The EBITDAR component of the adjusted debt to EBITDAR ratio excludes costs (i.e., rent) that are essential to the operation of our leased stores.
Reworded paragraphs (38)
Previous wording
Kohl's is a leading omnichannel retailer operating 1,174 stores and a website (www.Kohls.com) as of February 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 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 1,175 stores and a website (www.Kohls.com) as of February 1, 2025. 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 shops. Our website includes merchandise which is available in our stores, as well as merchandise that is available only online.
Previous wording
Net sales decreased 3.4%, to $16.6 billion. 2023 net sales included approximately $164 million from the 53rd week.
Current wording
Net sales decreased 7.2%, to $15.4 billion. 2023 net sales included approximately $164 million from the 53rd week.
Previous wording
Comparable sales, which compares the 52-week period ending January 27, 2024 versus the 52-week period ended January 28, 2023, decreased 4.7%.
Current wording
Comparable sales, which compares the 52-week period ending February 1, 2025 versus the 52-week period ended January 27, 2024, decreased 6.5%.
Previous wording
Selling, general & administration ("SG&A") expenses decreased 1.3%, to $5.5 billion. As a percentage of total revenue, SG&A expense was 31.5%, an increase of 67 basis points.
Current wording
Selling, general & administration ("SG&A") expenses decreased 3.7%, to $5.3 billion. As a percentage of total revenue, SG&A expenses were 32.7%, an increase of 118 basis points year-over-year.
Previous wording
Operating income was $717 million compared to $246 million in the prior year. As a percentage of total revenue, operating income was 4.1%, an increase of 274 basis points.
Current wording
Operating income was $433 million compared to $717 million in the prior year. As a percentage of total revenue, operating income was 2.7%, a decrease of 143 basis points year-over-year.
Previous wording
Net income of $317 million, or $2.85 per diluted share. This compares to net loss of $19 million, or ($0.15) per diluted share, in the prior year.
Current wording
Net income was $109 million, or $0.98 per diluted share. This compares to net income of $317 million, or $2.85 per diluted share in the prior year.
Previous wording
Operating cash flow was $1.2 billion.
Current wording
Operating cash flow was $648 million.
Previous wording
Net sales: A decrease of (1%) to an increase of 1%
Current wording
Net sales: A decrease of (5%) to a decrease of (7%)
Previous wording
Operating margin: In the range of 3.6% to 4.1%
Current wording
Operating margin: In the range of 2.2% to 2.6%
Previous wording
Diluted EPS: In the range of $2.10 to $2.70, excluding any non-recurring charges.
Current wording
Diluted EPS: In the range of $0.10 to $0.60
Previous wording
The retail calendar for fiscal January 2023 included a fifth week, resulting in a 14-week fiscal fourth quarter and a 53-week year. Our comparable sales in 2023 exclude the impact of the 53rd week and compare the 52 weeks ended January 27, 2024 to the 52 weeks ended January 28, 2023.
Current wording
The retail calendar for fiscal January 2023 included a fifth week, resulting in a 14-week fiscal fourth quarter and a 53-week year. Our comparable sales in 2024 exclude the impact of the 53rd week in 2023 and compare the 52 weeks ended February 1, 2025 and January 27, 2024.
Previous wording
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.
Current wording
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%.
Previous wording
The following graph summarizes net sales dollars and the change in comparable sales over the prior year. As our stores were closed for a period during 2020, we have not included a measure of 2021 comparable sales as we do not believe it is a meaningful metric over this period of time.
Current wording
The following graph summarizes net sales dollars and the change in comparable sales over the prior year.
Previous wording
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 9% in 2024. Digital penetration represented 28% of net sales in 2024 and 29% of net sales in 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 or digital returns processed in stores.
Previous wording
Net sales decreased $575 million, or (3.4%), to $16.6 billion for 2023.
Current wording
Net sales decreased $1.2 billion, or (7.2%), to $15.4 billion for 2024.
Previous wording
The decrease was driven by transaction volume down approximately 4% partially offset by an approximately 1% increase in average transaction value.
Current wording
The decrease was driven by an approximately 3% decrease in average transaction value as well as a decrease of approximately 4% in transaction volume.
Previous wording
Gross margin is calculated as net sales less cost of merchandise sold. Gross margin as a percent of net sales increased 347 basis points in 2023 compared to 2022. The increase in gross margin was driven by lower clearance markdowns, lower freight costs, reduced digital-related cost of shipping, and the simplification of our value strategies.
Current wording
Gross margin is calculated as net sales less cost of merchandise sold. Gross margin in 2024 was 37.2% of net sales, an increase of 50 basis points to last year. The increase in gross margin was driven by lower freight costs and strong inventory management as our receipts were down 5% to last year as we continue to benefit from operating with greater flexibility. This was partially offset by elevated shrink levels.
Previous wording
SG&A decreased $75 million, or 1.3%, to $5.5 billion in 2023. As a percentage of revenue, SG&A deleveraged by (67) basis points.
Current wording
SG&A decreased $204 million, or 3.7%, to $5.3 billion in 2024. As a percentage of revenue, SG&A deleveraged by 118 basis points.
Previous wording
Depreciation and amortization decreased in 2023, primarily driven by reduced capital spending in technology.
Current wording
Depreciation and amortization decreased in 2024, primarily driven by reduced capital spending in technology. This was partially offset by increased store investments, including Sephora shops and queuing lines.
Previous wording
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; third we will complete debt reduction transactions, when appropriate; and fourth we return excess cash to shareholders through our share repurchase program.
Current wording
Our capital allocation strategy is to invest to maximize our overall long-term return and maintain a strong balance sheet. 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; third we will complete debt reduction transactions, when appropriate; and fourth, when appropriate, we return excess cash to shareholders through our share repurchase program.
Previous wording
We will continue to invest in the business, as we plan to invest approximately $500 million in 2024, including the expansion of Sephora shops, the launch of Babies "R" Us, and the expansion of queuing lines to 350 stores. We remain committed to the dividend, and on February 28, 2024, our Board of Directors declared a quarterly cash dividend of $0.50 per share. The dividend will be paid on April 3, 2024 to all shareholders of record at the close of business on March 20, 2024. Last, we retired $164 million of notes due in February 2023 and $111 million of notes due December 2023. 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) as calculated in our capital structure ratio below.
Current wording
We will continue to invest in the business, as we plan to invest approximately $400 to $425 million in 2025, which includes the investments to complete the roll out of Sephora, expansion of impulse queuing lines, omnichannel enhancements, and two new store openings. On March 11, 2025, our Board of Directors declared a quarterly cash dividend of $0.125 per share. The dividend will be paid on April 2, 2025 to all shareholders of record at the close of business on March 21, 2025. Although we remain committed to returning capital to shareholders, this reduction in the quarterly dividend allows for greater balance sheet flexibility. In June 2024, we completed a voluntary redemption of the remaining $113 million of outstanding 9.50% notes due May 15, 2025. We did not complete any share repurchases during fiscal 2024.
Previous wording
Our period-end cash and cash equivalents balance increased to $183 million from $153 million in 2022. Our cash and cash equivalents balance includes short-term investments of $15 million and $10 million as of February 3, 2024, and January 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.
Current wording
Our period-end cash and cash equivalents balance decreased to $134 million from $183 million in 2023. Our cash and cash equivalents balance includes short-term investments of $9 million and $15 million as of February 1, 2025, and February 3, 2024, 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
Non-GAAP financial measure. Please see the “GAAP to Non-GAAP Reconciliation” for a reconciliation of adjusted free cash flow to net cash provided by operating activities.
Current wording
Non-GAAP financial measure. Please see the “Adjusted Free Cash Flow (Non-GAAP measure)” for a reconciliation of net cash provided by operating activities to adjusted free cash flow.
Previous wording
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.
Current wording
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 real estate.
Previous wording
Net cash used in investing activities decreased $221 million to $562 million in 2023. The decrease was primarily driven by fewer rollouts of Sephora shop build-outs and store refreshes undertaken in 2023, consistent with our capital expenditure plans for fiscal 2023.
Current wording
Net cash used in investing activities decreased $95 million to $467 million in 2024. The decrease was primarily driven by fewer Sephora shop openings and other investments, consistent with our reduced capital expenditure plans for fiscal 2024.
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 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.
Current wording
During 2024, S&P downgraded our senior unsecured credit rating from BB to BB-, Moody's downgraded our rating from Ba3 to B1, and Fitch downgraded our rating from BBB- to BB. Fitch revised their outlook to stable while S&P and Moody's reaffirmed their outlook at negative.
Previous wording
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.
Current wording
As a result of the downgrades, the interest rate on our 3.375% notes due May 2031 will increase an additional 50 basis points in May 2025 due to the coupon adjustment provision within the note. Our credit rating was also downgraded in 2023 and 2022. This resulted in the interest rates on our 3.375% notes due May 2031 and 9.50% notes due May 2025 increasing 100 basis points in 2023 and 25 basis points in 2022. In total, the interest rates on the notes due May 2031 have increased 175 basis points since their issuance, of which 50 basis points becomes effective in May 2025, and the rates on the notes due May 2025 increased 125 basis points from their issuance to their redemption in June 2024. Each of the credit rating agencies reviews its rating periodically and there is no guarantee our current credit ratings will remain the same.
Previous wording
The majority of our financing activities generally include proceeds and/or repayments of long-term debt, dividend payments, and in 2022 and 2021 repurchases of common stock. Financing cash outflows also include payments to our landlords for leases classified as financing leases and financing obligations.
Current wording
The majority of our financing activities generally include proceeds and/or repayments of borrowings under our revolving credit facility and 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.
Previous wording
In February 2023, $164 million in aggregate principal amount of our 3.25% notes matured and were repaid, and in December 2023, $111 million in aggregate principal amount of our 4.75% notes matured and were repaid.
Current wording
In the second quarter of 2024, we completed a voluntary redemption of the remaining $113 million of outstanding 9.50% notes due May 15, 2025. In February 2023, $164 million in aggregate principal amount of our 3.25% notes matured and was repaid, and in December 2023, $111 million in aggregate principal amount of our 4.75% notes matured and was repaid.
Previous wording
There was no cash used for treasury stock purchases in 2023 compared to $658 million used in 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).
Current wording
There was no cash used for treasury stock purchases in 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. While we are not currently planning for share repurchases, we expect to resume share repurchases over the long-term following improvement in overall leverage.
Previous wording
Cash dividend payments were $220 million ($2.00 per share) in 2023 and $239 million ($2.00 per share) in 2022.
Current wording
Cash dividend payments were $222 million ($2.00 per share) in 2024 and $220 million ($2.00 per share) in 2023.
Previous wording
We generated $519 million of adjusted free cash flow for 2023 compared to a negative adjusted free cash flow of $639 million in 2022. The increase is primarily driven by more cash provided by operating activities due to a higher net income and a reduction in inventory purchases of 9%, and a decrease in capital expenditures related to less Sephora shop build-outs and store refreshes in 2023. Adjusted free cash flow is a non-GAAP financial measure which we define as net cash provided by operating activities and proceeds from financing obligations (which generally represent landlord reimbursements of construction costs) less capital expenditures and finance lease and financing obligation payments. Adjusted free cash flow should be evaluated in addition to, and not considered a substitute for, other financial measures such as net income and net cash provided by operating activities. We believe that adjusted free cash flow represents our ability to generate additional cash flow from our business operations.
Current wording
In addition to net cash provided by operating activities, we provide Adjusted Free Cash Flow as a useful measure of our financial performance and position and our ability to generate additional cash flow from our business operations. We believe the presentation of Adjusted Free Cash Flow is relevant and useful for investors to evaluate the cash generated from operations consistent with the method used by management. Adjusted free cash flow is a non-GAAP financial measure which we define as net cash provided by operating activities and proceeds from financing obligations (which generally represent landlord reimbursements of construction costs) less capital expenditures and finance lease and financing obligation payments. Adjusted free cash flow is provided and should be evaluated in addition to, and not as an alternative to our other financial GAAP measures such as net cash provided by operating activities or net income.
Previous wording
Other purchase obligations primarily include royalties, legally binding minimum lease and interest payments for stores opening in 2024 or later, as well as payments associated with technology, marketing, and donation agreements. The obligations were $540 million as of February 3, 2024.
Current wording
Other purchase obligations primarily include royalties, legally binding minimum lease and interest payments for stores opening in 2025 or later, as well as payments associated with technology, marketing, and donation agreements. The obligations were $599 million as of February 1, 2025.
Previous wording
Accounting for leased properties requires compliance with technical accounting rules and significant judgment by management. Application of these accounting rules and assumptions made by management will determine if the lease is accounted for as a finance lease, an operating lease, or a financing obligation.
Current wording
Accounting for leased properties requires compliance with technical accounting rules and judgment by management. Application of these accounting rules and assumptions made by management will determine if the lease is accounted for as a finance lease, an operating lease, or a financing obligation.
Previous wording
The following are significant estimates used by management in accounting for real estate and other leases:
Current wording
The following are estimates used by management in accounting for real estate and other leases:
Previous wording
Incremental borrowing rate—The incremental borrowing rate is the rate of interest that the lessee would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. The incremental borrowing rate is used in determining whether the lease is accounted for as an operating lease or a finance lease.
Current wording
Incremental borrowing rate—The incremental borrowing rate is the rate of interest that the lessee would have to pay to borrow on a collateralized basis over a similar term for an amount equal to the lease payments in a similar economic environment. The incremental borrowing rate is used in determining whether the lease is accounted for as an operating lease or a finance lease.
Previous wording
In 2020, we entered into an arrangement with Sephora to be the exclusive beauty offering at Kohl's and bring a transformational, elevated beauty experience to Kohl’s. We sell prestige beauty products through Sephora-branded retail shops in certain Kohl’s stores and through a Sephora-branded offering on Kohls.com. We have opened 860 full size 2,500 square foot Sephora shops and 50 small format Sephora shops to date, and are planning to have a presence in all Kohl's stores by 2025.
Current wording
In 2020, we entered into an arrangement with Sephora to be the exclusive beauty offering at Kohl's and bring a transformational, elevated beauty experience to Kohl’s. We sell prestige beauty products through Sephora-branded retail shops in certain Kohl’s stores and through a Sephora-branded offering on Kohls.com. We have opened 861 full size 2,500 square foot Sephora shops and 190 small format Sephora shops to date.
Rearranged current paragraphs (1)
Current report — wording carried from elsewhere
Dividend: On March 11, 2025, Kohl’s Board of Directors declared a quarterly cash dividend on the Company’s common stock of $0.125 per share. The dividend is payable April 2, 2025 to shareholders of record at the close of business on March 21, 2025.