Kohl’s Corporation — Form 10-K Summary
Period: Fiscal 2009, ended January 30, 2010 (52 weeks), with comparisons to fiscal 2008. The request metadata says “2008 Q4,” but this filing is the annual report for fiscal 2009; it does include unaudited fourth-quarter comparisons.
Business context and reporting period
Kohl’s operated 1,058 family-oriented department stores in 49 states and an e-commerce business. It sells apparel, footwear, accessories, home products and housewares. The company emphasizes value, private and exclusive brands, and a low-cost operating model. E-commerce sales grew rapidly, and the company planned additional fulfillment capacity.
Financial performance and liquidity
| Metric | Fiscal 2009 | Fiscal 2008 |
|---|---|---|
| Net sales | $17.178 billion | $16.389 billion |
| Comparable-store sales | +0.4% | -6.9% |
| Gross margin | $6.498 billion; 37.8% of sales | $6.055 billion; 36.9% of sales |
| Operating income | $1.712 billion; 10.0% of sales | $1.536 billion; 9.4% of sales |
| Net income | $991 million | $885 million |
| Diluted EPS | $3.23 | $2.89 |
| Cash from operations | $2.234 billion | $1.698 billion |
| Capital expenditures | $666 million | $1.014 billion |
| Cash and cash equivalents at year-end | $2.267 billion | $643 million |
| Working capital / current ratio | $3.095 billion / 2.29:1 | $1.884 billion / 2.02:1 |
| Long-term debt and capital leases | $2.052 billion | $2.053 billion |
Sales rose 4.8%; new stores contributed $719 million of the increase, while comparable stores contributed $70 million. E-commerce revenue increased 38% to $492 million. Gross-margin improvement reflected inventory management and higher private/exclusive-brand penetration, which reached 44.3% of sales. SG&A rose 5.3% to $4.144 billion and increased slightly as a share of sales, to 24.1%.
Free cash flow, a non-GAAP measure defined as operating cash flow less capital expenditures, was $1.568 billion in the reconciliation table. The executive discussion describes fiscal 2008 free cash flow as $684 million, while that table reports $687 million.
Fourth-quarter fiscal 2009 sales were $5.682 billion versus $5.235 billion; net income was $431 million versus $336 million. The filing’s fourth-quarter table is unaudited.
Material changes versus the prior comparable period
- Comparable sales recovered from a 6.9% decline in 2008 to 0.4% growth in 2009; transaction count rose 2.4%, but average transaction value declined 2.0%, driven by fewer units per transaction.
- Operating income and net income increased, supported by improved gross margin and sales growth. SG&A and depreciation also increased.
- Operating cash flow rose 32%, while capital spending fell by $348 million, contributing to a substantial increase in year-end cash.
- Store count increased by 54 net stores to 1,058. The company remodeled 51 stores, compared with 36 in 2008.
Outlook, commentary, risks and unusual items
- Fiscal 2010 outlook: Management projected total sales growth of 4%–6%, comparable-store sales growth of 1%–3%, gross-margin expansion of 20–30 basis points, and SG&A dollar growth of 4%–5%. Diluted EPS guidance was $0.48–$0.52 for the first quarter and $3.40–$3.63 for fiscal 2010.
- Management expected consumer spending to remain weak and competition to remain intense. It planned about 30 new stores, 85 remodels, and approximately $900 million of capital expenditures. It forecast $800–$900 million of fiscal 2010 free cash flow.
- The company reported $379 million par value of auction-rate securities with estimated fair value around $320 million; auctions had failed since 2008, limiting liquidity. Management said it expected to hold the securities and did not anticipate a material effect on funding operations.
- The Kohl’s credit-card revenue-sharing agreement with JPMorgan Chase was due to expire in April 2011. Management was assessing replacement arrangements; if negotiations failed, Kohl’s might repurchase receivables, which were approximately $3 billion at January 30, 2010. The CARD Act was also expected to change credit-card practices and could affect program profitability.
- Debt maturities included $400 million in 2011; management expected to repay these amounts with cash and operating funds. The company reported compliance with debt covenants and no borrowings under its $900 million revolving facility at year-end.
- Contractual obligations included $11.038 billion of future operating-lease payments, in addition to debt, capital leases and purchase obligations. The company had not paid cash dividends and had paused share repurchases under its authorization.
- Sales benefited from the closure of Mervyn’s; management estimated this added approximately 140 basis points to 2009 comparable-store sales. No material legal proceedings or material impairments were reported. Ernst & Young issued unqualified opinions on the financial statements and internal controls.
Important facts for investors to verify
- Confirm the intended period: this is fiscal 2009, not a standalone 2008 fourth-quarter filing; distinguish annual results from the unaudited quarterly data.
- Reconcile the filing’s $684 million versus $687 million fiscal 2008 free-cash-flow figures and assess the quality and sustainability of the 2009 cash-flow increase, including higher accounts payable and extended vendor payment terms.
- Track auction-rate-security liquidity and valuation, and the outcome and economics of the JPMorgan Chase credit-card agreement, including any potential receivables repurchase.
- Assess whether sales and margin guidance can be achieved amid weak consumer demand, lower average transaction value, competitive pressure and the estimated Mervyn’s-related sales benefit.
- Evaluate lease commitments and planned capital spending alongside 2011 debt maturities, store expansion and e-commerce investment.