Kohl’s Corporation — Form 10-Q summary
Period: Quarter and nine months ended October 30, 2021. The supplied metadata labels this “2020 Q3,” but the filing itself covers 2021 Q3.
Business context and results
Kohl’s is an omnichannel retailer with 1,162 stores as of October 30, 2021. It sells apparel, footwear, accessories, beauty, and home products. Results are seasonal and may not indicate full-year performance.
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Total revenue | $4.600B | $3.979B | $12.934B | $9.814B |
| Net sales | $4.366B | $3.779B | $12.251B | $9.152B |
| Operating income (loss) | $387M | $22M | $1.230B | $(578)M |
| Net income (loss) | $243M | $(12)M | $639M | $(506)M |
| Diluted EPS | $1.65 | $(0.08) | $4.19 | $(3.28) |
| Gross margin as % of net sales | 39.9% | 35.8% | 40.6% | 30.5% |
| SG&A as % of total revenue | 30.0% | 32.7% | 29.3% | 34.8% |
Cash flow, debt, and liquidity
- Nine-month operating cash flow was $1.774B, versus $910M a year earlier. Investing used $391M; financing used $1.781B. Cash declined $398M from the fiscal-year opening balance to $1.873B.
- Capital expenditures were $426M. Inventory increased to $3.642B from $2.590B at January 30, 2021.
- Long-term debt was $1.909B, down from $2.451B at January 30, 2021. The company had no revolver borrowings and reported compliance with debt covenants.
- Cash was $1.873B; working capital was $1.949B and the current ratio was 1.49, compared with 1.60 a year earlier. Operating and finance lease liabilities totaled $4.385B; financing obligations were $483M.
- Kohl’s repurchased $807M of shares and paid $114M in dividends during the first nine months. Treasury stock purchases were a significant use of financing cash flow.
Changes, outlook, and management commentary
- Q3 net sales rose 15.5% year over year and comparable sales increased 14.7%. Digital sales grew 6% in the quarter and represented 29% of net sales. Versus Q3 2019, net sales were up 0.2% and digital sales were up 33%.
- Gross margin increased 408 basis points year over year in Q3. Management attributed the improvement to inventory management and pricing and promotion optimization, partly offset by higher freight costs. SG&A rose 6.0% in dollars but leveraged 273 basis points as a share of revenue.
- Fiscal 2021 outlook: net sales growth in the mid-twenties percent versus 2020; operating margin of 8.4%–8.5%; adjusted diluted EPS of $7.10–$7.30; capital expenditures of $600M–$650M; and planned share repurchases of $1.3B. Adjusted EPS is a non-GAAP measure.
- The outlook incorporates uncertainty from COVID-19, industry supply-chain constraints, higher digital penetration, and wage pressure. Management said it expects to mitigate wage costs through productivity and efficiency efforts.
- Kohl’s opened 200 Sephora shop-in-shops in Q3 and planned another 400 in 2022 and 250 in 2023. The company also issued $500M of 3.375% notes due 2031, tendered $1.0B of debt, and recorded a $201M debt-extinguishment loss in Q1.
Risks and contingencies
Management cited continued uncertainty over COVID-19, supply-chain disruption, transportation costs, inflation, and tight labor markets. The company said there were no significant changes to the risk factors in its 2020 Form 10-K. It is subject to legal proceedings and claims; management did not expect their outcomes to materially adversely affect the financial statements. The new revolving credit agreement includes a maximum leverage covenant and other restrictions.
Important facts for investors to verify
- Confirm the filing period: the report is for the quarter ended October 30, 2021, notwithstanding the metadata’s 2020 Q3 label.
- Track whether the sales, margin, and earnings recovery persists beyond comparisons with the pandemic-affected 2020 period.
- Assess delivery of the 2021 outlook amid supply-chain, freight, wage, and COVID-19 uncertainties; compare adjusted EPS with GAAP results.
- Monitor inventory growth, cash generation, planned buybacks, debt reduction, and lease-related obligations.
- Review the Sephora rollout’s investment requirements and contribution to sales and profitability.