Kohl’s Corporation — Form 10-Q Summary
Period: 13 weeks ended April 30, 2022. The request metadata says “2021 Q1,” but the filing is for first-quarter fiscal 2022.
Business context and results
Kohl’s operated 1,165 stores and its e-commerce site as an omnichannel retailer. It opened 48 Sephora shop-in-shops in the quarter, bringing the total to 248. Results are seasonal and this quarter is not necessarily indicative of full-year performance.
| Metric | Q1 2022 | Comparable period |
|---|---|---|
| Net sales | $3.471 billion | $3.662 billion; down 5.2% |
| Total revenue | $3.715 billion | $3.887 billion |
| Operating income / margin | $82 million / 2.2% | $273 million |
| Net income | $14 million | $14 million |
| Diluted EPS | $0.11 | $0.09 reported; $1.05 adjusted for debt-extinguishment loss and related tax impact |
| Gross margin | 38.3% | 39.0%; down 69 basis points |
| Operating cash flow | $(460) million | $278 million generated |
Financial position and material changes
- Net sales and comparable sales each fell 5.2%. Digital sales fell 4%, while digital penetration remained 30% of net sales. Home and Children’s declined; Accessories, Men’s, and Women’s outperformed the company average.
- Gross margin pressure primarily reflected higher freight costs, partly offset by pricing and promotion optimization. SG&A rose 10.5% to $1.293 billion and increased to 34.8% of revenue from 30.1%. The increase included nearly $50 million for Sephora openings, store refreshes and reflows, as well as $17 million related to the proxy contest and sale process.
- Cash and cash equivalents were $646 million at April 30, 2022, versus $1.609 billion a year earlier. Working capital was $1.369 billion versus $2.257 billion; the current ratio was 1.40 versus 1.77.
- Operating cash outflow reflected a $668 million increase in inventory, including Sephora beauty inventory, elevated in-transit goods and inventory rebuilding. Investing activities used $217 million, including $221 million in property and equipment purchases. Cash declined $941 million during the quarter.
- Unsecured senior debt was $1.923 billion gross, with $1.910 billion carrying value including current maturities. The company reported $4.823 billion of operating and finance lease liabilities, separate from debt. It was in compliance with debt covenants; credit ratings were Baa2/BBB-/BBB-, all with stable outlooks.
- Share repurchases were $158 million and dividends paid were $63 million ($0.50 per share). The board had increased remaining repurchase authorization to $3.0 billion.
Outlook, commentary and risks
Fiscal 2022 outlook: net sales growth of 0%–1% versus 2021; operating margin of 7.0%–7.2%; diluted EPS of $6.45–$6.85; capital expenditures of $850 million; and at least $1 billion in share repurchases.
Management cited ongoing supply-chain constraints and freight costs, inflation in food, fuel, energy, wages and merchandise sourcing, and continuing uncertainty from COVID-19. The board was reviewing strategic alternatives, including a potential sale; the company had received preliminary, non-binding proposals, with no assurance of a financed bid or transaction. Management warned the process could be disruptive, costly, litigated, and affect the share price. The Capital One private-label credit-card agreement was amended through March 31, 2030 and is expected to operate substantially as before. Management said pending legal proceedings were not expected to materially adversely affect the financial statements.
Important facts for investors to verify
- Whether inventory levels normalize and operating cash flow improves after the substantial inventory-related cash use.
- Whether freight costs, sales trends and SG&A performance support the full-year margin and EPS outlook.
- How the strategic review develops, including whether any binding, fully financed transaction proposal emerges.
- Whether planned repurchases and capital spending remain consistent with liquidity, debt service and the company’s investment-grade objectives.