Kohl’s Corporation — Form 10-K Summary
Period clarification: The supplied filing is Kohl’s fiscal 2020 Form 10-K for the 52 weeks ended January 30, 2021, not a 2019 Q4 filing. Fiscal 2019, ended February 1, 2020, is the principal comparison period. Dollars are in millions unless noted.
Business context
Kohl’s operated 1,162 stores in 49 states, Kohls.com, and 12 FILA outlets. It sells apparel, footwear, accessories, beauty, and home products through stores and digital channels. Fiscal 2020 results were materially affected by COVID-19: stores closed nationwide on March 20, began reopening May 4, and were fully reopened by July 10.
Financial performance
| Metric | FY2020 | FY2019 |
|---|---|---|
| Net sales | $15,031 | $18,885 |
| Total revenue | $15,955 | $19,974 |
| Gross margin (% of net sales) | 31.1% | 35.7% |
| Operating income (loss), GAAP | $(262) | $1,099 |
| Net income (loss), GAAP | $(163) | $691 |
| Diluted EPS, GAAP | $(1.06) | $4.37 |
| Operating cash flow | $1,338 | $1,657 |
| Capital expenditures | $334 | $855 |
| Free cash flow (non-GAAP) | $908 | $700 |
Net sales fell 20.4%. Digital sales rose 29% and reached 40% of net sales, versus 24% in fiscal 2019. Gross margin declined 464 basis points, primarily due to first-quarter inventory actions, higher digital shipping costs, and business mix, partly offset by inventory management and pricing actions. SG&A fell $684 million, or 12%, but rose to 31.5% of revenue from 28.6% as lower sales outweighed expense reductions.
Fiscal 2020 included $368 million of identified COVID-related costs, including $187 million of inventory write-downs. Other notable items included a $127 million gain on a sale-leaseback and a $383 million income tax benefit, including benefits from CARES Act net operating loss carrybacks. Adjusted non-GAAP net loss was $186 million, or $1.21 per diluted share.
In the fourth quarter, total revenue was $6,141 million versus $6,832 million in fiscal 2019 Q4; net income was $343 million versus $265 million, and diluted EPS was $2.20 versus $1.72. Management cited freight surcharges associated with elevated digital sales as a Q4 gross-margin pressure.
Liquidity, debt, and capital
Year-end cash and cash equivalents were $2,271 million, up from $723 million; working capital was $2,813 million versus $1,880 million, and the current ratio was 1.93 versus 1.68. Long-term debt was $2,451 million, up from $1,856 million; finance lease and financing obligations were $1,502 million. The company had no revolver borrowings at year-end and $1.5 billion of available capacity, subject to $31 million of letters of credit. Its adjusted debt-to-adjusted-EBITDAR ratio rose to 7.59 from 2.51.
Kohl’s issued $600 million of 9.50% notes due 2025, repaid its $1.0 billion revolver borrowing, and completed a San Bernardino fulfillment-center sale-leaseback that generated $193 million net proceeds. Credit ratings were Baa2/BBB-/BBB-, each with a negative outlook. The company was in compliance with debt covenants at year-end.
Outlook, strategy, and risks
Management’s fiscal 2021 outlook was mid-teens net sales growth, a 4.5%–5.0% operating margin, diluted EPS of $2.45–$2.95, capital expenditures of $550–$600 million, and share repurchases of $200–$300 million. The company also set a multi-year operating-margin goal of 7%–8%.
The October 2020 strategy emphasizes sales growth, margin expansion, disciplined capital management, and an agile, inclusive culture. Initiatives include expanding active and outdoor products, growing beauty through an exclusive Sephora partnership, and improving inventory turns and operating efficiency. Sephora was planned to launch in 200 stores and online in fall 2021, expanding to at least 850 locations by 2023.
- COVID-19 uncertainty, possible renewed restrictions, changing consumer demand, store traffic, and elevated digital fulfillment costs.
- Inventory and sourcing exposure, including markdown risk, freight and labor costs, overseas supply chains, and potential tariffs.
- Competitive and execution risks related to digital retail, omnichannel fulfillment, technology, and strategic initiatives.
- Cybersecurity, data privacy, labor availability and costs, and potential effects of the activist-investor proxy contest announced for the 2021 annual meeting.
- Tax uncertainty: gross unrecognized tax benefits were $298 million at year-end; resolution of audits and tax positions may affect results.
Important facts for investors to verify
- Confirm that the intended period is fiscal 2020 ended January 30, 2021, rather than 2019 Q4.
- Assess whether the 2021 sales, margin, and EPS outlook was achieved, and whether elevated digital sales and freight costs affected margins as expected.
- Track cash generation, debt reduction, credit ratings, and the company’s ability to meet its multi-year 7%–8% operating-margin goal.
- Review the timing, costs, and sales contribution of the Sephora rollout and other growth initiatives.
- Evaluate the sustainability of the tax benefit and the status of the $298 million unrecognized-tax-benefit balance.