Market Overview

Kohl's Corporation Reports Financial Results

Share:
  • Annual comparable sales(1) increase 1.7%, fourth quarter
    comparable sales increase 1.0%
  • Annual diluted earnings per share of $4.84
  • Adjusted diluted earnings per share(2) of $5.60, exceed the
    high end of guidance by $0.05 per share

Kohl's Corporation (NYSE:KSS) today reported results for the quarter and
year ended February 2, 2019.

   
    Three Months     Twelve Months  
($ in millions, except per share data)     2018     2017     Change       2018     2017     Change  
Total revenue $ 6,823   $ 7,057     (3.3 )% $ 20,229   $ 20,084     0.7 %
Comparable sales(1) 1.0 % 6.3 % 1.7 % 1.5 %
Gross margin 33.5 % 33.5 % 1 bps 36.4 % 36.0 % 32 bps
Selling, general, and administrative expenses $ 1,694 $ 1,726 (1.9 )% $ 5,601 $ 5,501 1.8 %
Reported
Net income $ 272 $ 468 (42 )% $ 801 $ 859 (7 )%
Diluted earnings per share $ 1.67 $ 2.81 (41 )% $ 4.84 $ 5.12 (5 )%
Non-GAAP(2)
Net income $ 366 $ 312 17 % $ 927 $ 703 32 %
Diluted earnings per share   $ 2.24     $ 1.87       20 %   $ 5.60     $ 4.19       34 %
 

(1) Comparable sales on a shifted basis compares the 13 and
52-week periods ended February 2, 2019 and February 3, 2018. On a fiscal
basis, comparable sales decreased 1.0% for the quarter and increased
1.5% for the year. The fiscal basis compares the 13 and 52-week periods
ended February 2, 2019 and January 27, 2018.

(2) Excludes Impairments, store closures and other costs;
Loss on extinguishment of debt; Tax reform and State tax settlement.

"The positive momentum we've had all year continued as we achieved a 1
percent comp sales increase for the fourth quarter, resulting in a 1.7
percent increase for the year," said Michelle Gass, Kohl's chief
executive officer. "Building on the exceptional holiday we had in 2017,
we've now achieved a 7 percent increase in the fourth quarter on a
two-year basis."

"With a clear focus on driving traffic and operating with discipline,
the Company is delivering sales growth while also improving
profitability. We are financially strong and our overall health in the
business is positioning us well for continued success," Gass continued.
"I want to thank all of our Kohl's associates for another successful
year of strong execution and great performance. Moreover, I thank them
for their commitment to providing an engaging, enjoyable experience to
our customers."

Operational Update

As the Company disclosed in an SEC filing in early January, it took
several actions in the fourth quarter as part of its Operational
Excellence initiatives. The Company will close four underperforming
stores in April, but will open four new smaller format stores later in
the year. It is consolidating call center locations which support both
its Kohl's Charge and online customers. Additionally, the Company
offered a voluntary retirement program to qualified hourly associates
and impaired certain assets.

These actions are expected to generate annual SG&A savings of
approximately $20 million dollars and annual depreciation savings of
approximately $5 million dollars. The Company incurred $104 million
dollars in pretax charges in the fourth quarter as a result of these
actions and estimate that approximately $50-55 million dollars of
additional charges will be recorded in the first quarter of 2019. Most
of the 2019 charges will be related to future lease commitments at the
four stores that will be closing.

Additionally, the Company retired $413 million dollars of debt in the
fourth quarter and reported a $21 million dollar loss on extinguishment
of debt. Combined with the tender offer in the first quarter and
additional open market debt repurchases, the Company reduced its
outstanding debt by over $900 million dollars and extended the remaining
maturity of the portfolio an additional two years. The debt reduction is
expected to decrease annual interest expense by approximately $45
million dollars.

Dividend

On February 27, 2019, Kohl's Board of Directors declared a quarterly
cash dividend on the Company's common stock of $0.67 per share, a 10%
increase over its prior dividend. The dividend is payable April 3,
2019 to shareholders of record at the close of business on March 20,
2019.

Store Update

Kohl's ended the fiscal year with 1,159 Kohl's stores in 49 states.
During 2018, the Company opened one Kohl's store and relocated two
Kohl's stores.

Initial 2019 Earnings Guidance

The Company expects earnings per diluted share of $5.80 to $6.15 for
fiscal 2019. This guidance is based on the following assumptions which
includes the impact of the new lease standard, but excludes any
non-recurring charges:

  • Comparable sales change of 0% to 2.0%
  • Gross margin as a percentage of sales increase up to 10 basis points
    over 2018
  • SG&A dollars increase 1% to 2% over 2018. Excluding the impact of
    lease accounting, SG&A dollars are expected to increase 0.5% to 1.5%
  • Depreciation expense of $930 million, which includes a $25 million
    dollar benefit from lease accounting
  • Interest expense of $200 million, which includes a $10 million dollar
    benefit from lease accounting
  • Effective tax rate of 24% to 25%
  • Share repurchases of $400-$500 million

Fourth Quarter 2018 Earnings Conference Call

Kohl's will host its quarterly earnings conference call at 9:00 am ET on
March 5, 2019. The phone number for the conference call is (800)
230-1085. Replays of the call will be available for 30 days by dialing
(800) 475-6701. The conference ID is 445967. The conference call and
replays are also accessible via the Company's web site at http://corporate.kohls.com/investors/events-and-presentations.

Cautionary Statement Regarding Forward-Looking
Information

This press release contains "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995,
including 2019 earnings guidance. Kohl's intends forward-looking
terminology such as "believes," "expects," "may," "will," "should,"
"anticipates," "plans," or similar expressions to identify
forward-looking statements. Such statements are subject to certain risks
and uncertainties, which could cause Kohl's actual results to differ
materially from those anticipated by the forward-looking statements.
These risks and uncertainties include, but are not limited to, those
described in Item 1A in Kohl's Annual Report on Form 10-K, which is
expressly incorporated herein by reference, and other factors as may
periodically be described in Kohl's filings with the SEC.
Forward-looking statements relate to the date initially made, and Kohl's
undertakes no obligation to update them.

About Kohl's

Kohl's (NYSE:KSS) is a leading omnichannel retailer with more than
1,100 stores in 49 states. With a commitment to inspiring and empowering
families to lead fulfilled lives, Kohl's offers amazing national and
proprietary brands, incredible savings and an easy shopping experience
in our stores, online at Kohls.com and on Kohl's mobile app. Since its
founding, Kohl's has given more than $700 million to support communities
nationwide, with a focus on family health and wellness. For a list of
store locations or to shop online, visit Kohls.com. For more information
about Kohl's impact in the community or how to join our winning team,
visit Corporate.Kohls.com or follow @KohlsNews on Twitter.

 

KOHL'S CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

 
Three Months Ended   Twelve Months Ended  
(Dollars in Millions, Except per Share Data)   Feb 2,

2019

(13 Weeks)

  Feb 3,

2018

(14 Weeks) (1)

  Feb 2,

2019

(52 Weeks)

  Feb 3,

2018

(53 Weeks) (1)

 
Net sales $ 6,535 $ 6,762 $ 19,167 $ 19,036
Other revenue     288     295     1,062     1,048  
Total revenue 6,823 7,057 20,229 20,084
Cost of merchandise sold 4,345 4,497 12,199 12,176
Gross margin rate 33.5 % 33.5 % 36.4 % 36.0 %
Operating expenses:
Selling, general, and administrative 1,694 1,726 5,601 5,501
As a percent of total revenue 24.8 % 24.5 % 27.7 % 27.4 %
Depreciation and amortization 239 267 964 991
Impairments, store closing and other costs 104 - 104 -
Operating income 441 567 1,361 1,416
Interest expense, net 58 74 256 299
Loss on extinguishment of debt     21     -     63     -  
Income before income taxes 362 493 1,042 1,117
Provision for income taxes 90 25 241 258
Net income   $ 272   $ 468   $ 801   $ 859  
Average number of shares:
Basic 162 165 164 167
Diluted 163 167 165 168
Earnings per share:
Basic $ 1.68 $ 2.83 $ 4.88 $ 5.14
Diluted   $ 1.67   $ 2.81   $ 4.84   $ 5.12  
 

(1) The retail calendar for fiscal January 2018 included a
fifth week, resulting in a 14-week fiscal fourth quarter and a 53-week
year in 2017. The approximate impact of the 53rd week was
total revenue of $180 million, selling, general and administrative
expenses of $40 million, interest of $3 million, additional net income
of $15 million and additional diluted earnings per share of $0.10 for
the year.

 

ADJUSTED NET INCOME AND DILUTED EARNINGS PER SHARE, NON-GAAP
FINANCIAL MEASURES

(Unaudited)

 
Three Months   Twelve Months  
(Dollars in Millions, Except per Share Data)   Feb 2,

2019

(13 Weeks)

  Feb 3,

2018

(14 Weeks)

  Feb 2,

2019

(52 Weeks)

  Feb 3,

2018

(53 Weeks)

 
Net income    
GAAP $ 272 $ 468 $ 801 $ 859
Impairments, store closures and other costs 78 - 78 -
Loss on extinguishment of debt 16 - 48 -
Tax reform - (136 ) - (136 )
State tax settlement     -     (20 )   -     (20 )
Adjusted (non-GAAP)   $ 366   $ 312   $ 927   $ 703  
 
Diluted earnings per share
GAAP $ 1.67 $ 2.81 $ 4.84 $ 5.12
Impairments, store closures and other costs 0.47 - 0.47 -
Loss on extinguishment of debt 0.10 - 0.29 -
Tax reform - (0.82 ) - (0.81 )
State tax settlement     -     (0.12 )   -     (0.12 )
Adjusted (non-GAAP)   $ 2.24   $ 1.87   $ 5.60   $ 4.19  
 
 

KOHL'S CORPORATION

CONSOLIDATED BALANCE SHEETS

(Unaudited)

   
(Dollars in Millions)   February 2,

2019

  February 3,

2018

Assets
Current assets:
Cash and cash equivalents $ 934 $ 1,308
Merchandise inventories 3,475 3,542
Other     426       530
Total current assets 4,835 5,380
Property and equipment, net 7,428 7,773
Other assets     206       236
Total assets   $ 12,469     $ 13,389
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 1,187 $ 1,271
Accrued liabilities 1,364 1,213
Income taxes payable 64 99
Current portion of capital lease and financing obligations     115       126
Total current liabilities 2,730 2,709
Long-term debt 1,861 2,797
Capital lease and financing obligations 1,523 1,591
Deferred income taxes 184 211
Other long-term liabilities 644 662
Shareholders' equity     5,527       5,419
Total liabilities and shareholders' equity   $ 12,469     $ 13,389
 
 

KOHL'S CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

   
(Dollars in Millions)   2018

(52 Weeks)

  2017

(53 Weeks)

Operating activities
Net income $ 801 $ 859
Adjustments to reconcile net income to net cash provided

by operating activities:

Depreciation and amortization 964 991
Share-based compensation 87 55
Deferred income taxes (31 ) (61 )
Impairments, store closing and other costs 72 -
Loss on extinguishment of debt 63 -
Other non-cash revenues and expenses 18 2
Changes in operating assets and liabilities:
Merchandise inventories 79 264
Other current and long-term assets 72 (81 )
Accounts payable (84 ) (236 )
Accrued and other long-term liabilities 67 (52 )
Income taxes     (1 )     (50 )
Net cash provided by operating activities     2,107       1,691  
 
Investing activities
Acquisition of property and equipment (578 ) (672 )
Other     6       23  
Net cash used in investing activities     (572 )     (649 )
 
Financing activities
Treasury stock purchases (396 ) (306 )
Shares withheld for taxes on vested restricted shares (34 ) (14 )
Dividends paid (400 ) (368 )
Reduction of long-term borrowings (943 ) -
Premium paid on redemption of debt (46 ) -
Capital lease and financing obligation activity (126 ) (138 )
Proceeds from stock option exercises     36       18  
Net cash used in financing activities     (1,909 )     (808 )
Net (decrease) increase in cash and cash equivalents (374 ) 234
Cash at beginning of period     1,308       1,074  
Cash at end of period   $ 934     $ 1,308  

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