Kohl’s Corporation — FY2023 Form 10-K
Period: Fiscal year ended February 3, 2024 (53 weeks). The filing is an annual report, not a standalone 2022 Q4 report; its reported comparisons are FY2023 versus FY2022. Comparable sales compare equivalent 52-week periods.
Business context
Kohl’s operated 1,174 U.S. stores and Kohls.com, selling apparel, footwear, accessories, beauty and home products. Sephora sales exceeded $1.4 billion in FY2023; Sephora was present in more than 900 stores at year-end.
Financial results
| Metric | FY2023 | FY2022 |
|---|---|---|
| Net sales | $16.586 billion | $17.161 billion |
| Total revenue | $17.476 billion | $18.098 billion |
| Gross margin as % of net sales | 36.7% | 33.2% |
| Operating income | $717 million | $246 million |
| Net income (loss) | $317 million | $(19) million |
| Diluted EPS | $2.85 | $(0.15) |
| Net cash from operations | $1.168 billion | $282 million |
| Adjusted free cash flow | $519 million | $(639) million |
Comparable sales declined 4.7%; net sales fell 3.4%, including approximately $164 million attributable to the 53rd week. Digital sales declined 14% and represented 29% of net sales. Transaction volume fell about 4%, partly offset by a 1% increase in average transaction value. Accessories sales rose 23.4%, driven by Sephora, while other reported merchandise categories declined.
Gross margin improved 347 basis points, reflecting lower clearance markdowns, freight and digital shipping costs, and changes to promotional strategy. SG&A declined 1.3% to $5.512 billion, but increased to 31.5% of total revenue, up 67 basis points. Net interest expense rose to $344 million from $304 million.
Liquidity, debt and capital allocation
Cash and cash equivalents were $183 million at year-end, versus $153 million. Working capital was $798 million and the current ratio was 1.31. Inventory was $2.880 billion, down 10% year over year. The company generated $1.168 billion of operating cash flow, supported by higher earnings and inventory management.
Long-term debt was $1.638 billion; revolving-credit borrowings were $92 million. Finance leases and financing obligations totaled $2.763 billion, and operating lease liabilities were $2.883 billion. Adjusted debt to EBITDAR improved to 3.63 from 4.92; management’s long-term target is 2.5. Kohl’s repaid $275 million of notes that matured during FY2023, made no share repurchases, and paid $2.00 per share in dividends. It reported compliance with debt covenants.
Outlook, commentary and risks
For FY2024, management expects net sales from a 1% decline to a 1% increase, comparable sales growth of 0%–2%, operating margin of 3.6%–4.1%, and diluted EPS of $2.10–$2.70, excluding non-recurring charges. Planned capital expenditures are approximately $500 million, including Sephora expansion, Babies “R” Us, and store investments. Management expects gross-margin expansion of 40–50 basis points and SG&A dollars flat to slightly down. Guidance includes potential effects of credit-card late-fee regulation in the second half.
The CFPB finalized a rule in March 2024 to reduce the safe-harbor amount for credit-card late fees; management warned it could reduce credit revenue and is pursuing mitigation with Capital One. Credit-rating downgrades increased coupon rates on certain notes; Moody’s and S&P ratings were Ba3 and BB, respectively, with negative outlooks. Key disclosed risks include pressured consumer spending, competitive pricing, inventory and markdown execution, supply-chain costs, labor expense, seasonality, cybersecurity, and regulatory or reputational developments.
A putative securities class action remains pending; the company intends to defend the claims and said it could not estimate a reasonably possible loss range. Gross unrecognized tax benefits were $200 million. The company reported effective disclosure controls and internal control over financial reporting; the auditor issued unqualified opinions.
Investor facts to verify
- Whether sales and comparable-sales trends stabilize, particularly after the decline in digital sales and transaction volume.
- Whether Sephora growth and planned investments translate into sustained sales and margin improvements.
- How the CFPB late-fee rule affects credit revenue, and the timing and effectiveness of Kohl’s mitigation actions.
- Progress toward the 2.5 adjusted debt-to-EBITDAR target, refinancing needs, and consequences of further rating downgrades.
- Developments in the securities litigation, tax examinations, and inventory markdown and shrink estimates.