Kohl’s Corporation — Form 10-Q Summary
Period: The filing covers the 13 weeks ended May 1, 2021, compared with the 13 weeks ended May 2, 2020. Although the request metadata says 2020 Q1, the filing itself is for 2021 Q1. Amounts are in U.S. dollars; financial statement figures are in millions unless noted.
Business context and results
Kohl’s operated 1,162 stores, a website, and 12 FILA outlets. The first-quarter comparison is heavily affected by COVID-19-related store closures in the prior-year period. Management said sales and earnings exceeded expectations and that business momentum was returning to pre-pandemic levels.
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Net sales | $3,662 | $2,160 |
| Other revenue | $225 | $268 |
| Total revenue | $3,887 | $2,428 |
| Gross margin | $1,429; 39.0% of net sales | $373; 17.3% of net sales |
| SG&A | $1,170; 30.1% of total revenue | $1,066; 43.9% of total revenue |
| Operating income (loss) | $273; 7.0% of total revenue | $(718) |
| Net income (loss) | $14 | $(541) |
| Diluted EPS | $0.09 | $(3.52) |
| Adjusted diluted EPS (non-GAAP) | $1.05 | $(3.22) |
| Cash from operating activities | $278 | $53 |
| Capital expenditures, cash basis | $59 | $162 |
Financial position and liquidity
- Cash and cash equivalents were $1,609 at May 1, 2021, versus $2,039 a year earlier and $2,271 at January 30, 2021. Working capital was $2,257 and the current ratio was 1.77.
- Long-term debt was $1,909, down from $3,449 a year earlier and $2,451 at fiscal year-end. The company issued $500 of 3.375% notes due 2031 and tendered $1,000 of senior unsecured debt.
- Quarterly financing cash outflow was $883, primarily reflecting debt repayments, the tender premium, dividends, and share repurchases. Cash declined by $662 during the quarter.
- Finance lease and financing obligations totaled $1,585, including current and long-term portions; operating lease liabilities totaled $2,779.
- Kohl’s reported no outstanding borrowings on its revolving facility at May 1, 2021, and said it was in compliance with debt covenants.
Material changes and management commentary
- Net sales increased 69.5% year over year, with all merchandise categories growing. Store sales more than doubled against the prior-year period’s closures. Digital sales rose 14%; digital penetration was 30%, compared with 45% a year earlier.
- Gross margin expanded 2,173 basis points. Management cited pricing and promotion optimization, stronger inventory management, lower markdowns, reduced digital shipping costs, and favorable industry conditions. Prior-year gross margin included $187 of inventory-related charges, including a $163 reserve for excess seasonal inventory.
- SG&A increased $104, but fell as a share of revenue by 1,379 basis points. Higher store and distribution costs reflected increased sales and transportation and payroll costs; lower technology costs partly offset the increases.
- GAAP results included a $201 loss on extinguishment of debt, including a $192 tender premium. Excluding this item and its tax impact, net income was $165 and diluted EPS was $1.05, non-GAAP measures.
- The company reinstated its dividend and share repurchase programs. It paid $0.25 per share in dividends during the quarter; the board declared another $0.25 quarterly dividend payable June 23, 2021. The remaining repurchase authorization was $1,984 at quarter-end.
Outlook, risks, and contingencies
- Fiscal 2021 outlook: net sales growth in the mid-to-high teens; operating margin of 5.7%–6.1%; adjusted diluted EPS of $3.80–$4.20, excluding non-recurring charges; capital expenditures of $550–$600; and share repurchases of $200–$300.
- Management cautioned that the duration and severity of the COVID-19 pandemic and its financial effects remained uncertain. It also cited potential supply-chain disruption, sourcing costs, wage inflation, and general economic conditions. Some favorable industry margin conditions may ease as inventory rebuilds.
- The new 2031 notes provide for coupon step-ups if specified credit-rating thresholds are breached. The company’s ratings were Baa2/Negative from Moody’s and BBB-/Stable from S&P and Fitch.
- Management said pending legal proceedings and claims were not expected to have a material adverse impact. No significant changes to the risk factors in the 2020 Form 10-K were reported.
Important facts for investors to verify
- Confirm the reporting period: this filing is for Q1 2021, not Q1 2020.
- Assess sales and margin trends against a COVID-disrupted comparison period and monitor whether digital and store growth persist.
- Review the reconciliation and assumptions behind adjusted EPS and the effect of the $201 debt-extinguishment charge.
- Track cash generation, liquidity, debt reduction, planned capital spending, dividends, and repurchases against the 2021 outlook.
- Monitor supply-chain costs, inventory levels, pandemic impacts, and any changes in credit ratings or debt terms.