Kohl’s Corporation — FY2021 Form 10-K
Period clarification: The filing is for the 52 weeks ended January 29, 2022, not 2020 Q4. Fiscal 2020 ended January 30, 2021. Unless stated otherwise, dollar amounts are in U.S. dollars.
Business context
Kohl’s operated 1,165 U.S. stores and Kohls.com, selling apparel, footwear, accessories, beauty, and home products. The company launched 200 Sephora shop-in-shops during 2021 and planned further expansion. Results rebounded from pandemic-affected 2020, when stores were temporarily closed.
Financial performance and liquidity
| Metric | FY2021 | Comparison / detail |
|---|---|---|
| Net sales | $18.471 billion | Up 22.9% from 2020; 2.2% below 2019 |
| Total revenue | $19.433 billion | Includes $962 million of other revenue |
| Gross margin | 38.1% of net sales | Up 700 basis points from 2020; up 237 basis points from 2019 |
| SG&A | $5.478 billion | Up 9.1% year over year; leveraged 328 basis points as a share of revenue |
| Operating income / margin | $1.680 billion / 8.6% | Compared with an operating loss of $262 million in 2020 |
| Net income / diluted EPS | $938 million / $6.32 | 2020 net loss was $163 million, or $1.06 per diluted share |
| Adjusted diluted EPS | $7.33 | Non-GAAP; excludes the debt-extinguishment loss, net of tax |
| Operating cash flow / free cash flow | $2.271 billion / $1.556 billion | Free cash flow is a non-GAAP measure; 2020 free cash flow was $908 million |
| Cash and cash equivalents | $1.587 billion | Down from $2.271 billion at FY2020 year-end |
| Working capital / current ratio | $1.737 billion / 1.53 | FY2020: $2.813 billion / 1.93 |
Digital sales were flat versus 2020 and represented 32% of net sales. Active and outdoor sales grew more than 40% year over year. Management attributed margin improvement to inventory discipline and pricing and promotion optimization, partly offset by higher freight and supply-chain costs.
Long-term debt was $1.910 billion at year-end. The company also reported $2.251 billion in finance leases and financing obligations and $2.624 billion in operating lease liabilities. Its $1.0 billion unsecured revolving credit facility was undrawn; Kohl’s reported compliance with debt covenants and investment-grade ratings with stable outlooks. Adjusted debt to adjusted EBITDAR, a non-GAAP ratio, was 2.33x versus 7.70x in 2020.
Key changes, outlook, and risks
- Recovery versus 2020: Store-driven sales recovery and stronger earnings followed 2020’s pandemic disruption. Against 2019, sales remained 2.2% lower, while gross margin improved.
- Capital returns and debt: Kohl’s repurchased $1.4 billion of shares and paid $147 million in dividends in 2021. A $1.0 billion debt tender offer generated a $201 million extinguishment loss, including a $192 million tender premium. The company issued $500 million of 3.375% notes due 2031 and ended the year with lower cash than in 2020.
- 2022 outlook: Management projected net sales growth of 2%–3%, operating margin of 7.2%–7.5%, diluted EPS of $7.00–$7.50, capital expenditures of approximately $850 million, and at least $1 billion of share repurchases.
- Execution and cost risks: The filing highlights supply-chain disruption, freight and merchandise-cost inflation, wage pressure, inventory forecasting, competition, and the ability to sustain customer demand and execute omnichannel and Sephora plans.
- Other material uncertainties: COVID-19 impacts could continue; credit-card revenue may be affected by customer payment behavior and funding costs; cybersecurity, vendor, legal, and regulatory issues are risks. A proxy contest announced by Macellum for the 2022 annual meeting could incur costs and distract management.
- Unusual items and controls: The 2020 results included a $127 million gain on sale-leaseback and $89 million of impairment, store-closing, and other costs. The 2021 filing reports an unqualified audit opinion and effective internal controls over financial reporting.
Most important facts for investors to verify
- Whether sales growth, gross-margin gains, and the 7%–8% operating-margin strategy are sustainable as supply, freight, and labor costs evolve.
- Whether the 2022 sales, margin, EPS, capital-spending, and repurchase outlook was achieved; these are management expectations, not results.
- Cash generation after capital expenditures, dividends, and repurchases, and the effect of shareholder returns on liquidity and leverage.
- Debt maturities, lease obligations, credit-facility covenant headroom, and the effect of any credit-rating changes on borrowing costs.
- Sephora shop-in-shop performance and expansion economics, alongside digital sales trends and the business’s progress relative to 2019.
- Developments in the Macellum proxy contest, litigation and tax uncertainties, and any material updates to pandemic, cybersecurity, or supply-chain risks.