SEC Form 10-Q filed by Kohl's Corporation

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 November 2, 2024

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 29, 2024 Common Stock, Par Value $0.01 per Share, 111,317,504 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	11
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	19
Item 4.	Controls and Procedures	19
PART II	OTHER INFORMATION	20
Item 1.	Legal Proceedings	20
Item 1A.	Risk Factors	20
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	20
Item 5.	Other Information	20
Item 6.	Exhibits	21
	Signatures	22

 

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

KOHL’S CORPORATION

CONSOLIDATED BALANCE SHEETS

 

(Dollars in Millions)	November 2, 2024	February 3, 2024	October 28, 2023
Assets	(Unaudited)	(Audited)	(Unaudited)
Current assets:
Cash and cash equivalents	$174	$183	$190
Merchandise inventories	4,099	2,880	4,239
Other	344	347	291
Total current assets	4,617	3,410	4,720
Property and equipment, net	7,472	7,720	7,861
Operating leases	2,500	2,499	2,492
Other assets	465	380	394
Total assets	$15,054	$14,009	$15,467
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$1,873	$1,134	$1,918
Accrued liabilities	1,245	1,201	1,324
Borrowings under revolving credit facility	749	92	625
Current portion of:
Long-term debt	353	—	111
Finance leases and financing obligations	80	83	84
Operating leases	93	102	94
Total current liabilities	4,393	2,612	4,156
Long-term debt	1,174	1,638	1,638
Finance leases and financing obligations	2,533	2,680	2,714
Operating leases	2,799	2,781	2,780
Deferred income taxes	78	107	107
Other long-term liabilities	273	298	321
Shareholders’ equity:
Common stock	2	2	2
Paid-in capital	3,554	3,528	3,514
Treasury stock, at cost	(2,580)	(2,571)	(2,568)
Retained earnings	2,828	2,934	2,803
Total shareholders’ equity	$3,804	$3,893	$3,751
Total liabilities and shareholders’ equity	$15,054	$14,009	$15,467

 

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)	November 2, 2024	October 28, 2023	November 2, 2024	October 28, 2023
Net sales	$3,507	$3,843	$10,210	$10,876
Other revenue	203	211	614	644
Total revenue	3,710	4,054	10,824	11,520
Cost of merchandise sold	2,137	2,349	6,188	6,638
Operating expenses:
Selling, general, and administrative	1,291	1,360	3,769	3,902
Depreciation and amortization	184	188	560	562
Operating income	98	157	307	418
Interest expense, net	76	89	245	262
Income before income taxes	22	68	62	156
(Benefit) provision for income taxes	—	9	1	25
Net income	$22	$59	$61	$131
Net income per share:
Basic	$0.20	$0.54	$0.55	$1.19
Diluted	$0.20	$0.53	$0.55	$1.18

 

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)	November 2, 2024	October 28, 2023	November 2, 2024	October 28, 2023
Common stock
Balance, beginning of period	$2	$2	$2	$4
Stock-based awards	—	—	—	—
Retirement of treasury stock	—	—	—	(2)
Balance, end of period	$2	$2	$2	$2
Paid-in capital
Balance, beginning of period	$3,546	$3,502	$3,528	$3,479
Stock-based awards	8	12	26	35
Balance, end of period	$3,554	$3,514	$3,554	$3,514
Treasury stock
Balance, beginning of period	$(2,579)	$(2,569)	$(2,571)	$(13,715)
Stock-based awards	(1)	—	(10)	(13)
Dividends paid	—	1	1	3
Retirement of treasury stock	—	—	—	11,157
Balance, end of period	$(2,580)	$(2,568)	$(2,580)	$(2,568)
Retained earnings
Balance, beginning of period	$2,861	$2,800	$2,934	$13,995
Net income	22	59	61	131
Dividends paid	(55)	(56)	(167)	(168)
Retirement of treasury stock	—	—	—	(11,155)
Balance, end of period	$2,828	$2,803	$2,828	$2,803
Total shareholders' equity, end of period	$3,804	$3,751	$3,804	$3,751
Common stock
Shares, beginning of period	161	161	161	378
Stock-based awards	—	—	—	—
Retirement of treasury stock	—	—	—	(217)
Shares, end of period	161	161	161	161
Treasury stock
Shares, beginning of period	(50)	(50)	(50)	(267)
Stock-based awards	—	—	—	—
Retirement of treasury stock	—	—	—	217
Shares, end of period	(50)	(50)	(50)	(50)
Total shares outstanding, end of period	111	111	111	111
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)	November 2, 2024	October 28, 2023
Operating activities
Net income	$61	$131
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	560	562
Share-based compensation	25	31
Deferred income taxes	(33)	(25)
Non-cash lease expense	67	70
Other non-cash items	2	13
Changes in operating assets and liabilities:
Merchandise inventories	(1,216)	(1,046)
Other current and long-term assets	(75)	66
Accounts payable	739	588
Accrued and other long-term liabilities	(2)	58
Operating lease liabilities	(76)	(69)
Net cash provided by operating activities	52	379
Investing activities
Acquisition of property and equipment	(367)	(495)
Proceeds from sale of real estate	2	15
Other	2	(11)
Net cash used in investing activities	(363)	(491)
Financing activities
Net borrowings under revolving credit facility	657	540
Shares withheld for taxes on vested restricted shares	(10)	(13)
Dividends paid	(166)	(165)
Repayment of long-term borrowings	(113)	(164)
Premium paid on redemption of debt	(5)	—
Finance lease and financing obligation payments	(62)	(68)
Proceeds from financing obligations	1	19
Net cash provided by financing activities	302	149
Net (decrease) increase in cash and cash equivalents	(9)	37
Cash and cash equivalents at beginning of period	183	153
Cash and cash equivalents at end of period	$174	$190
Supplemental information
Interest paid, net of capitalized interest	$232	$229
Income taxes paid	63	41
Property and equipment acquired (disposed) through exchange of:
Finance lease liabilities	(74)	(23)
Operating lease liabilities	78	247

 

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 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.

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 statements under management's discussion and analysis, financial and capital allocation outlook and may include comments 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 2023 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 1,178 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.

Key financial results for the third quarter include:

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Our Strategy

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.

Updated 2024 Financial and Capital Allocation Outlook

For the full year 2024, which has 52 weeks compared to 53 weeks in full year 2023, the Company currently expects the following:

Results of Operations

Total Revenue

 

	Three Months Ended			Nine Months Ended
(Dollars in Millions)	November 2, 2024	October 28, 2023	Change	November 2, 2024	October 28, 2023	Change
Net sales	$3,507	$3,843	$(336)	$10,210	$10,876	$(666)
Other revenue	203	211	(8)	614	644	(30)
Total revenue	$3,710	$4,054	$(344)	$10,824	$11,520	$(696)

 

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

Net sales decreased 8.8% in the third quarter of 2024 and 6.1% year to date 2024.

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	Three Months Ended			Nine Months Ended
(Dollars in Millions)	November 2, 2024	October 28, 2023	Change	November 2, 2024	October 28, 2023	Change
Women's	$869	$1,007	(13.7%)	$2,796	$3,094	(9.6%)
Men's	701	792	(11.5%)	2,041	2,296	(11.1%)
Accessories (including Sephora)	650	620	4.8%	1,934	1,703	13.6%
Home	473	494	(4.3%)	1,301	1,389	(6.3%)
Children's	486	562	(13.5%)	1,189	1,352	(12.1%)
Footwear	328	368	(10.9%)	949	1,042	(8.9%)
Net Sales	$3,507	$3,843	(8.8%)	$10,210	$10,876	(6.1%)

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%.

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.

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 includes revenue from credit card operations, third-party advertising on our website, unused gift cards and merchandise return cards (breakage), and other non-merchandise revenue.

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.

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.

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.

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.

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Cost of Merchandise Sold and Gross Margin

 

	Three Months Ended				Nine Months Ended
(Dollars in Millions)	November 2, 2024	October 28, 2023	Change		November 2, 2024	October 28, 2023	Change
Net sales	$3,507	$3,843	$(336)		$10,210	$10,876	$(666)
Cost of merchandise sold	2,137	2,349	(212)		6,188	6,638	(450)
Gross margin	$1,370	$1,494	$(124)		$4,022	$4,238	$(216)
Gross margin as a percent of net sales	39.1%	38.9%	20	bps	39.4%	39.0%	42	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 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.

Selling, General, and Administrative Expense

 

	Three Months Ended				Nine Months Ended
(Dollars in Millions)	November 2, 2024	October 28, 2023	Change		November 2, 2024	October 28, 2023	Change
SG&A	$1,291	$1,360	$(69)		$3,769	$3,902	$(133)
As a percent of total revenue	34.8%	33.5%	125	bps	34.8%	33.9%	95	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.

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 our expenses as a percentage of revenue and changes in this percentage compared to the prior year. 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".

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

 

	Three Months Ended	Nine Months Ended
(Dollars in Millions)	November 2, 2024	November 2, 2024
Store expenses	$(17)	$(80)
Corporate and other	(44)	(39)
Distribution	(5)	(18)
Marketing	(3)	4
Total decrease	$(69)	$(133)

 

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.

Other Expenses

 

	Three Months Ended			Nine Months Ended
(Dollars in Millions)	November 2, 2024	October 28, 2023	Change	November 2, 2024	October 28, 2023	Change
Depreciation and amortization	$184	$188	$(4)	$560	$562	$(2)
Interest expense, net	76	89	(13)	245	262	(17)

 

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.

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.

Income Taxes

 

	Three Months Ended			Nine Months Ended
(Dollars in Millions)	November 2, 2024	October 28, 2023	Change	November 2, 2024	October 28, 2023	Change
(Benefit) provision for income taxes	$—	$9	$(9)	$1	$25	$(24)
Effective tax rate	(2.8%)	13.3%		1.3%	16.4%

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.

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.

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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; third we will complete debt reduction transactions, when appropriate; and fourth we return excess cash to shareholders through our share repurchase program.

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.

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.

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

 

	Nine Months Ended
(Dollars in Millions)	November 2, 2024	October 28, 2023	Change
Net cash provided by (used in):
Operating activities	$52	$379	$(327)
Investing activities	(363)	(491)	128
Financing activities	302	149	153

 

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.

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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.

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, equipment, and real estate.

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.

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.

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 our credit ratings.

During the first half of 2024, Fitch downgraded our senior unsecured credit rating from BBB- to BB and revised their outlook to stable. While Moody's reaffirmed our credit rating, they also revised their outlook to stable.

As of November 2, 2024, our senior unsecured credit ratings and outlook were as follows:

 

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

 

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.

Financing activities generated $302 million of cash year to date 2024 and $149 million of cash year to date 2023.

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.

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.

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.

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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.

Key Financial Ratios

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

 

(Dollars in Millions)	November 2, 2024	October 28, 2023
Working capital	$224	$564
Current ratio	1.05	1.14

 

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 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.

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 November 2, 2024, we were in compliance with all covenants.

Contractual Obligations

Aside from the voluntary redemption of the remaining $113 million of outstanding 9.50% notes due May 15, 2025 and the change in borrowings under our revolving credit facility, which have been disclosed in Note 3 of the Consolidated Financial Statements, there have been no significant changes in the contractual obligations disclosed in our 2023 Form 10-K.

Off-Balance Sheet Arrangements

We have not provided any financial guarantees arising from arrangements with unconsolidated entities or persons as of November 2, 2024.

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 2023 Form 10-K.

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Item 3. Quantitative and Qualitative Disclosures about Market Risk

We redeemed the remaining $113 million of outstanding 9.50% notes due May 15, 2025 in June 2024, which has been disclosed in Note 3 of the Consolidated Financial Statements. There have been no other significant changes in the Quantitative and Qualitative Disclosures about Market Risk described in our 2023 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.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended November 2, 2024 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 5, 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 2023 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 November 2, 2024:

 

(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
August 4 - August 31, 2024	9,504	$19.22	—	$2,476
September 1 - October 5, 2024	11,229	$19.72	—	$2,476
October 6 - November 2, 2024	24,702	$19.51	—	$2,476
Total	45,435	$19.50	—

 

Item 5. Other Information

During the three months ended November 2, 2024, 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
10.1		Offer Letter, dated November 22, 2024, between J. Ashley Buchanan and the Company, incorporated by reference to Exhibit 10.1 of the Company's Current Report on Form 8-K filed on November 25, 2024.
10.2		Form of Executive Compensation Agreement (included as Exhibit B to Exhibit 10.1), incorporated by reference to Exhibit 10.2 of the Company's Current Report on Form 8-K filed on November 25, 2024.
10.3		Form of Restricted Stock Unit Agreement (1-Year Recruitment Grant) (included in Exhibit C to Exhibit 10.1), incorporated by reference to Exhibit 10.3 of the Company's Current Report on Form 8-K filed on November 25, 2024.
10.4		Form of Restricted Stock Unit Agreement (3-Year Recruitment Grant) (included in Exhibit C to Exhibit 10.1), incorporated by reference to Exhibit 10.4 of the Company's Current Report on Form 8-K filed on November 25, 2024.
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 With Embedded Linkbase Documents
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: December 5, 2024	/s/ Jill Timm
	Jill Timm On behalf of the Registrant and as Chief Financial Officer (Principal Financial Officer)

 

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