Kohl’s Corporation — Form 10-K Summary
Period clarification: The supplied filing is for fiscal 2019, the 52 weeks ended February 1, 2020—not fiscal 2018 Q4. It provides separate quarterly results, including Q4 2019.
Business context and reporting period
Kohl’s operated 1,159 stores, Kohls.com and 12 FILA outlets at year-end, selling apparel, footwear, accessories, beauty and home products. Fiscal 2019 and fiscal 2018 each comprised 52 weeks; fiscal 2017 comprised 53 weeks.
Key financial results
| Metric | Fiscal 2019 | Fiscal 2018 |
|---|---|---|
| Net sales | $18.885 billion | $19.167 billion |
| Total revenue | $19.974 billion | $20.229 billion |
| Gross margin as % of net sales | 35.7% | 36.4% |
| Operating income | $1.099 billion | $1.361 billion |
| Net income | $691 million | $801 million |
| Diluted EPS | $4.37 | $4.84 |
| Cash from operating activities | $1.657 billion | $2.107 billion |
| Capital expenditures | $855 million | $578 million |
| Free cash flow (non-GAAP) | $700 million | $1.403 billion |
Net sales declined 1.5%; comparable sales fell 1.3%, primarily because average transaction value declined. Digital sales grew at a low-double-digit rate and represented 24% of net sales, up from 21%. SG&A was $5.705 billion, or 28.6% of revenue, versus $5.601 billion, or 27.7%, in 2018. The effective tax rate was 23.3%.
Q4 2019: Total revenue was $6.832 billion versus $6.823 billion in Q4 2018; net income was $265 million versus $272 million; diluted EPS was $1.72 versus $1.67.
Liquidity, debt and capital allocation
Year-end cash was $723 million, down from $934 million. Working capital was $1.880 billion and the current ratio was 1.68, compared with $2.105 billion and 1.77 in 2018. Long-term debt was $1.856 billion; finance lease and financing obligations totaled $1.491 billion; operating lease liabilities were $2.777 billion following adoption of ASC 842. Adjusted debt to adjusted EBITDAR, a non-GAAP measure, rose to 2.51 from 2.16. Kohl’s reported compliance with debt covenants and had no revolving-facility borrowings at year-end.
Operating cash flow and free cash flow declined year over year, while capital expenditures rose, including investments in a sixth e-commerce fulfillment center, stores and technology. Kohl’s paid $423 million in dividends and repurchased $470 million of stock in 2019. The board approved a 5% dividend increase in February 2020.
Material changes, outlook and risks
- Gross margin decreased 64 basis points, reflecting increased promotional markdowns, business mix and higher digital-shipping costs.
- SG&A deleveraged by 88 basis points. Management cited brand-launch costs, wage pressures, Amazon Returns rollout costs and higher rent expense associated with the new lease standard.
- Fiscal 2019 included $113 million of impairment, store-closing and other costs, including charges related to four Kohl’s store closures, four Off-Aisle closures, severance, brand exits and technology projects. Adjusted net income was $769 million and adjusted diluted EPS was $4.86; these are non-GAAP measures.
- ASC 842 adoption added $2.24 billion to assets and $2.15 billion to liabilities, with an $88 million increase to retained earnings; the filing says the effect on 2019 net income was immaterial. Prior periods were not restated.
- The filing gives no clear quantified operating guidance for fiscal 2020. It identifies COVID-19 as a significant subsequent-event risk: by March 2020, some stores had temporarily closed or reduced hours, customer traffic had declined, and the financial impact could not be reasonably estimated. Kohl’s drew its full $1 billion unsecured revolving credit facility to increase cash and preserve flexibility.
- Other cited risks include economic weakness and reduced consumer spending, competition and digital-channel shifts, sourcing and tariff costs, inventory execution, cybersecurity, technology implementation, labor costs and lease obligations. The company reported no material legal proceedings, while noting it faces ordinary-course claims.
Important facts for investors to verify
- Confirm the intended period: the filing covers fiscal 2019, not fiscal 2018 Q4; use the quarterly disclosures for Q4 comparisons.
- Review the drivers and sustainability of weaker comparable sales, gross margin and operating cash flow, alongside digital growth and higher fulfillment costs.
- Assess the impact of COVID-19 store disruptions and the $1 billion credit-facility draw; the filing does not quantify the expected financial effect.
- Reconcile lease liabilities and non-GAAP leverage measures when comparing debt and operating performance across periods.
- Evaluate capital spending, dividends and repurchases against reduced free cash flow and the company’s liquidity needs.