8-K
KOHLS Corp (KSS)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): March 1, 2023
KOHL’S CORPORATION
(Exact name of registrant as specified in its charter)
| Wisconsin | 001-11084 | 39-1630919 |
|---|---|---|
| (State or other jurisdiction<br> <br>of incorporation) | (Commission<br> <br>File Number) | (IRS Employer<br> <br>Identification No.) |
| N56 W17000 Ridgewood Drive<br> <br>Menomonee Falls, Wisconsin | 53051 | |
| --- | --- | |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (262) 703-7000
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| ☐ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
|---|---|
| ☐ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
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| ☐ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
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| ☐ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
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Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading<br>Symbol(s) | Name of each exchange<br> <br>on which registered |
|---|---|---|
| Common Stock, $.01 par value | KSS | New York Stock Exchange |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§ 230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§ 240.12b-2 of this chapter).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
| Item 2.02. | Results of Operations and Financial Condition. |
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On March 1, 2023, Kohl’s Corporation (the “Company”) issued a press release reporting its earnings for the quarter and year ended January 28, 2023 and provided earnings guidance for fiscal 2023. A copy of the press release is attached as Exhibit 99.1 and incorporated by reference herein. A copy of the presentation materials for the March 1, 2023 quarterly earnings conference call is attached as Exhibit 99.2 and incorporated by reference herein.
| Item 7.01. | Regulation FD Disclosure. |
|---|
See Item 2.02.
The information in Items 2.02 and 7.01, including the exhibits attached hereto, is furnished solely pursuant to Items 2.02 and 7.01 of Form 8-K. Consequently, such information is not deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liabilities of that section. Further, the information in Items 2.02 and 7.01, including the exhibits, shall not be deemed to be incorporated by reference into the filings of the registrant under the Securities Act of 1933.
| Item 8.01. | Other Events. |
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As previously announced, on February 21, 2023, the Board of Directors of the Company declared a quarterly cash dividend of $0.50 per share. The dividend will be paid on March 29, 2023 to all shareholders of record at the close of business on March 15, 2023.
Cautionary Statement Regarding Forward-Looking Information and Non-GAAP Measures
This current report on Form 8-K contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. The Company intends forward-looking terminology such as “believes,” “expects,” “may,” “will,” “should,” “intends,” “anticipates,” “plans,” or similar expressions to identify forward-looking statements. Such statements, including statements regarding future performance, business conditions or results of operations, and other information are subject to certain risks and uncertainties, which could cause the Company’s actual results to differ materially from those anticipated by the forward-looking statements. These risks and uncertainties include, but are not limited to, risks described more fully in Item 1A in the Company’s Annual Report on Form 10-K and Item 1A of Part II of the Company’s Quarterly Report on Form 10-Q for the first quarter of fiscal 2022, which are expressly incorporated herein by reference, and other factors as may periodically be described in the Company’s filings with the SEC. Forward-looking statements relate to the date initially made, and the Company undertakes no obligation to update them.
In the attached press release and presentation materials, the Company provides information regarding adjusted net (loss) income, adjusted diluted (loss) earnings per share, and free cash flow, which are not recognized terms under U.S. generally accepted accounting principles (“GAAP”) and do not purport to be alternatives to net income as a measure of operating performance. Reconciliations of adjusted net (loss) income, adjusted diluted (loss) earnings per share, and free cash flow are provided in the press release and presentation materials attached hereto as Exhibits 99.1 and 99.2, respectively. The Company believes that the use of these non-GAAP financial measures provides investors with enhanced visibility into its results with respect to the impact of certain costs. Because not all companies use identical calculations, these presentations may not be comparable to other similarly titled measures of other companies.
| Item 9.01. | Financial Statements and Exhibits. |
|---|---|
| Exhibit<br>No. | Description |
| --- | --- |
| 99.1 | Press Release dated March 1, 2023 |
| 99.2 | Presentation Materials for March 1, 2023 Quarterly Earnings Conference Call |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| Dated: March 1, 2023 | KOHL’S CORPORATION | |
|---|---|---|
| By: | /s/ Jennifer Kent | |
| Jennifer Kent | ||
| Senior Executive Vice President, Chief Legal Officer and Corporate Secretary |
EX-99.1
Exhibit 99.1
Kohl’s Reports Fourth Quarter and Full Year Fiscal 2022 Financial Results
| • | Fourth quarter net sales decrease 7.2% and comparable sales decrease 6.6% |
|---|---|
| • | Fourth quarter diluted loss per share of ($2.49) |
| --- | --- |
| • | Introduces full year 2023 financial outlook |
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| • | Committed to strengthening balance sheet, while continuing to return capital to shareholders through the dividend<br>in 2023 |
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MENOMONEE FALLS, Wis.—(BUSINESS WIRE)—March 1, 2023— Kohl’s Corporation (NYSE:KSS) today reported results for the quarter and year ended January 28, 2023.
Tom Kingsbury, Kohl’s chief executive officer, stated, “Kohl’s fourth quarter results reflect meaningful proactive measures we took to better position the business for 2023, as well as sales pressure driven by the ongoing persistent inflationary environment. Kohl’s has a solid foundation and a highly motivated team with a set of priorities to capitalize on what I see as a substantial opportunity to make a difference in the retail landscape.”
Mr. Kingsbury continued, “Our efforts to drive the business are already underway. We are refining our strategy and re-establishing merchandise disciplines with a customer-centric focus across the organization. I am confident that our efforts will drive improved, and more consistent, sales and earnings performance over the long-term.”
Fourth Quarter 2022Results
Comparisons refer to the 13-week period ended January 28, 2023 versus the 13-week period ended January 29, 2022
| • | Net sales decreased 7.2% year-over-year, to $5.8 billion, with comparable sales down 6.6%.<br> |
|---|---|
| • | Gross margin as a percentage of net sales was 23.0%, a decrease of 1,016 basis points. Clearance markdowns<br>impacted margin by approximately 750 basis points and product cost inflation impacted margin by approximately 200 bps. |
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| • | Selling, general & administrative (SG&A) expenses decreased 0.6%<br>year-over-year, to $1.7 billion. As a percentage of total revenue, SG&A expenses were 27.9%, an increase of 190 basis points year-over-year. |
| --- | --- |
| • | Operating loss was $302 million compared to operating income of $450 million in the prior year.<br>As a percentage of total revenue, operating loss was 5.0%, a decrease of 1,195 basis points year-over-year. |
| --- | --- |
| • | Net loss was $273 million, or ($2.49) per diluted share. This compares to net income of<br>$299 million, or $2.20 per diluted share in the prior year. |
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| • | Inventory was $3.2 billion, an increase of 4% year-over-year. |
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| • | Operating cash flow was $707 million driven by improvements in working capital during the fourth<br>quarter of 2022. |
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Fiscal Year 2022 Results
Comparisons refer to the 52-week period ended January 28, 2023 versus the52-week period ended January 29, 2022
| • | Net sales decreased 7.1% year-over-year, to $17.2 billion, with comparable sales down 6.6%.<br> |
|---|---|
| • | Gross margin as a percentage of net sales was 33.2%, a decrease of 485 basis points.<br> |
| --- | --- |
| • | SG&A expenses increased 2.0% year-over-year, to $5.6 billion. As a percentage of total revenue,<br>SG&A expense was 30.9%, an increase of 268 basis points year-over-year. |
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| • | Operating income was $246 million compared to $1.7 billion in the prior year. As a percentage of<br>total revenue, operating income was 1.4%, a decrease of 729 basis points year-over-year. |
| --- | --- |
| • | Net loss of $19 million, or ($0.15) per diluted share. This compares to net income of<br>$938 million, or $6.32 per diluted share, and adjusted net income of $1.1 billion, or $7.33 per diluted share, in the prior year. |
| --- | --- |
| • | Operating cash flow was $282 million. |
| --- | --- |
2023 Financial and Capital Allocation Outlook
For the full year 2023, the Company currently expects the following:
| • | Net sales: A decrease of (2%) to (4%), includes the impact of the 53rd week which is worth approximately<br>1% year-over-year. |
|---|---|
| • | Operating margin: Approximately 4.0%. |
| --- | --- |
| • | Diluted earnings per share: In the range of $2.10 to $2.70, excluding any<br>non-recurring charges. |
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| • | Capital Expenditures: $600 million to $650 million, including expansion of its Sephora<br>partnership and store refresh activity. |
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| • | Dividend: On February 21, 2023, Kohl’s Board of Directors declared a quarterly cash dividend on<br>the Company’s common stock of $0.50 per share. The dividend is payable March 29, 2023 to shareholders of record at the close of business on March 15, 2023. |
| --- | --- |
| • | Debt Reduction: The Company retired $164 million of bonds that matured in February 2023, and expects<br>to retire $111 million of bonds maturing in December 2023. |
| --- | --- |
Fourth Quarter 2022 Earnings Conference Call
Kohl’s will host its quarterly earnings conference call at 9:00 am ET on March 1, 2023. A webcast of the conference call and the related presentation materials will be available via the Company’s web site at investors.kohls.com, both live and after the call.
Cautionary StatementRegarding Forward-Looking Information and Non-GAAP Measures
This press release contains“forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. The Company 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 the Company’s actual results todiffer materially from those anticipated by the forward-looking statements. These risks and uncertainties include, but are not limited to, risks described more fully in Item 1A in the Company’s Annual Report on Form 10-K and Item 1A of Part II of the Company’s Quarterly Report on Form 10-Q for the first quarter of fiscal 2022, which are expressly incorporated herein by reference, andother factors as may periodically be described in the Company’s filings with the SEC. Forward-looking statements relate to the date initially made, and Kohl’s undertakes no obligation to update them.
In this press release, the Company provides information regarding adjusted net (loss) income and adjusted diluted (loss) earnings per share, which are notrecognized terms under U.S. generally accepted accounting principles (“GAAP”) and do not purport to be alternatives to net income as a measure of operating performance. A reconciliation of adjusted net (loss) income and adjusteddiluted (loss) earnings per share is provided in this release. The Company believes that the use of these non-GAAP financial measures provides investors with enhanced visibility into its results withrespect to the impact of certain costs. Because not all companies use identical calculations, these presentations may not be comparable to other similarly titled measures of other companies.
About Kohl’s
Kohl’s (NYSE: KSS) is a leading omnichannel retailer. With more than 1,100 stores in 49 states and the online convenience of Kohls.com and the Kohl’s App, Kohl’s offers amazing national and exclusive brands at incredible savings for families nationwide. Kohl’s is uniquely positioned to deliver against its strategy and its vision to be the most trusted retailer of choice for the active and casual lifestyle. Kohl’s is committed to progress in its diversity and inclusion pledges, and the company’s environmental, social, and corporate governance (ESG) stewardship. 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.
Contacts
Investor Relations:
Mark Rupe, (262) 703-1266, mark.rupe@kohls.com
Media:
Jen Johnson, (262) 703-5241, jen.johnson@kohls.com
KOHL’S CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| Three Months Ended | Twelve Months Ended | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (Dollars in Millions, Except per Share Data) | January 28,<br>2023 | January 29,<br>2022 | January 28,<br>2023 | January 29,<br>2022 | ||||||||
| Net sales | $ | 5,775 | **** | $ | 6,220 | $ | 17,161 | **** | $ | 18,471 | ||
| Other revenue | **** | 244 | **** | 279 | **** | 937 | **** | 962 | ||||
| Total revenue | **** | 6,019 | **** | 6,499 | **** | 18,098 | **** | 19,433 | ||||
| Cost of merchandise sold | **** | 4,444 | **** | 4,155 | **** | 11,457 | **** | 11,437 | ||||
| Gross margin rate | **** | 23.0 | % | 33.2 | % | **** | 33.2 | % | 38.1 | % | ||
| Operating expenses: | ||||||||||||
| Selling, general, and administrative | **** | 1,677 | **** | 1,687 | **** | 5,587 | **** | 5,478 | ||||
| As a percent of total revenue | **** | 27.9 | % | 26.0 | % | **** | 30.9 | % | 28.2 | % | ||
| Depreciation and amortization | **** | 200 | **** | 207 | **** | 808 | **** | 838 | ||||
| Operating (loss) income | **** | (302 | ) | 450 | **** | 246 | **** | 1,680 | ||||
| Interest expense, net | **** | 78 | **** | 65 | **** | 304 | **** | 260 | ||||
| Loss on extinguishment of debt | **** | — | **** | — | **** | — | **** | 201 | ||||
| (Loss) Income before income taxes | **** | (380 | ) | 385 | **** | (58 | ) | 1,219 | ||||
| (Benefit) Provision for income taxes | **** | (107 | ) | 86 | **** | (39 | ) | 281 | ||||
| Net (loss) income | $ | (273 | ) | $ | 299 | $ | (19 | ) | $ | 938 | ||
| Average number of shares: | ||||||||||||
| Basic | **** | 110 | **** | 134 | **** | 120 | **** | 146 | ||||
| Diluted | **** | 110 | **** | 136 | **** | 120 | **** | 148 | ||||
| (Loss) Earnings per share: | ||||||||||||
| Basic | $ | (2.49 | ) | $ | 2.23 | $ | (0.15 | ) | $ | 6.41 | ||
| Diluted | $ | (2.49 | ) | $ | 2.20 | $ | (0.15 | ) | $ | 6.32 |
ADJUSTED NET (LOSS) INCOME AND DILUTED (LOSS) EARNINGS PER SHARE,NON-GAAP FINANCIAL MEASURES
(Unaudited)
| Three Months Ended | Twelve MonthsEnded | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| (Dollars in Millions, Except per Share Data) | January 28,<br>2023 | January 29,<br>2022 | January 28,<br>2023 | January 29,<br>2022 | |||||||
| Net (loss) income | |||||||||||
| GAAP | $ | (273 | ) | $ | 299 | $ | (19 | ) | $ | 938 | |
| Loss on extinguishment of debt | **** | — | **** | — | **** | — | **** | 201 | |||
| Income tax impact of items noted above | **** | — | **** | — | **** | — | **** | (50 | ) | ||
| Adjusted (non-GAAP)^(1)^ | $ | (273 | ) | $ | 299 | $ | (19 | ) | $ | 1,089 | |
| Diluted (loss) earnings per share | |||||||||||
| GAAP | $ | (2.49 | ) | $ | 2.20 | $ | (0.15 | ) | $ | 6.32 | |
| Loss on extinguishment of debt | **** | — | **** | — | **** | — | **** | 1.35 | |||
| Income tax impact of items noted above | **** | — | **** | — | **** | — | **** | (0.34 | ) | ||
| Adjusted (non-GAAP)^(1)^ | $ | (2.49 | ) | $ | 2.20 | $ | (0.15 | ) | $ | 7.33 | |
| (1) | Amounts shown for the three and twelve months ended January 28, 2023 and the three months ended<br>January 29, 2022 are GAAP as there are no adjustments to Non-GAAP. These amounts are shown for comparability purposes. | ||||||||||
| --- | --- |
KOHL’S CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
| (Dollars in Millions) | January 28,<br>2023 | January 29,<br>2022 | ||
|---|---|---|---|---|
| Assets | ||||
| Current assets: | ||||
| Cash and cash equivalents | $ | 153 | $ | 1,587 |
| Merchandise inventories | **** | 3,189 | 3,067 | |
| Other | **** | 394 | 369 | |
| Total current assets | **** | 3,736 | 5,023 | |
| Property and equipment, net | **** | 7,926 | 7,304 | |
| Operating leases | **** | 2,304 | 2,248 | |
| Other assets | **** | 379 | 479 | |
| Total assets | $ | 14,345 | $ | 15,054 |
| Liabilities and Shareholders’ Equity | ||||
| Current liabilities: | ||||
| Accounts payable | $ | 1,330 | $ | 1,683 |
| Accrued liabilities | **** | 1,220 | 1,340 | |
| Borrowings under revolving credit facility | **** | 85 | — | |
| Current portion of: | ||||
| Long-term debt | **** | 275 | — | |
| Finance leases and financing obligations | **** | 94 | 118 | |
| Operating leases | **** | 111 | 145 | |
| Total current liabilities | **** | 3,115 | 3,286 | |
| Long-term debt | **** | 1,637 | 1,910 | |
| Finance leases and financing obligations | **** | 2,786 | 2,133 | |
| Operating leases | **** | 2,578 | 2,479 | |
| Deferred income taxes | **** | 129 | 206 | |
| Other long-term liabilities | **** | 337 | 379 | |
| Shareholders’ equity | **** | 3,763 | 4,661 | |
| Total liabilities and shareholders’ equity | $ | 14,345 | $ | 15,054 |
KOHL’S CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| Twelve Months Ended | ||||||
|---|---|---|---|---|---|---|
| (Dollars in Millions) | January 28,<br>2023 | January 29,<br>2022 | ||||
| Operating activities | ||||||
| Net (loss) income | $ | (19 | ) | $ | 938 | |
| Adjustments to reconcile net (loss) income to net cash<br><br><br>provided by operating activities: | ||||||
| Depreciation and amortization | **** | 808 | **** | 838 | ||
| Share-based compensation | **** | 30 | **** | 48 | ||
| Deferred income taxes | **** | (84 | ) | (92 | ) | |
| Loss on extinguishment of debt | **** | — | **** | 201 | ||
| Non-cash lease expense | **** | 106 | **** | 139 | ||
| Other non-cash expenses | **** | 30 | **** | 12 | ||
| Changes in operating assets and liabilities: | ||||||
| Merchandise inventories | **** | (116 | ) | (467 | ) | |
| Other current and long-term assets | **** | 87 | **** | 569 | ||
| Accounts payable | **** | (353 | ) | 206 | ||
| Accrued and other long-term liabilities | **** | (99 | ) | 21 | ||
| Operating lease liabilities | **** | (108 | ) | (142 | ) | |
| Net cash provided by operating activities | **** | 282 | **** | 2,271 | ||
| Investing activities | ||||||
| Acquisition of property and equipment | **** | (826 | ) | (605 | ) | |
| Proceeds from sale of real estate | **** | 43 | **** | 35 | ||
| Net cash used in investing activities | **** | (783 | ) | (570 | ) | |
| Financing activities | ||||||
| Proceeds from issuance of debt | **** | — | **** | 500 | ||
| Net borrowings under revolving credit facility | **** | 85 | **** | — | ||
| Deferred financing costs | **** | (6 | ) | (8 | ) | |
| Treasury stock purchases | **** | (658 | ) | (1,355 | ) | |
| Shares withheld for taxes on vested restricted shares | **** | (21 | ) | (27 | ) | |
| Dividends paid | **** | (239 | ) | (147 | ) | |
| Reduction of long-term borrowings | **** | — | **** | (1,044 | ) | |
| Premium paid on redemption of debt | **** | — | **** | (192 | ) | |
| Finance lease and financing obligation payments | **** | (106 | ) | (125 | ) | |
| Proceeds from financing obligations | **** | 11 | **** | 15 | ||
| Proceeds from stock option exercises | **** | 1 | **** | 1 | ||
| Other | **** | — | **** | (3 | ) | |
| Net cash used in financing activities | **** | (933 | ) | (2,385 | ) | |
| Net decrease in cash and cash equivalents | **** | (1,434 | ) | (684 | ) | |
| Cash and cash equivalents at beginning of period | **** | 1,587 | **** | 2,271 | ||
| Cash and cash equivalents at end of period | $ | 153 | **** | $ | 1,587 |
EX-99.2
Exhibit 99.2 Q4 2022 Results Presentation March 1, 2023
Cautionary Statement Regarding Forward-Looking Information This presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as believes, anticipates, plans, may, intends, will, should, expects, and similar expressions are intended to identify forward-looking statements. Forward-looking statements include, but are not limited to, comments about Kohl's future financial plans, capital generation, management and deployment strategies, adequacy of capital resources and the competitive environment. 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, risks described more fully in Item 1A in the Company's Annual Report on Form 10-K and Item 1A of Part II of the Company's Quarterly Report on Form 10-Q for the first quarter of fiscal 2022, which are expressly incorporated herein by reference, and other factors as may periodically be described in the Company's filings with the SEC. Any number of risks and uncertainties could cause actual results to differ materially from those Kohl’s expresses in its forward-looking statements, including macroeconomic conditions such as inflation and the long-term impact of COVID-19 on the economy and the pace of recovery thereafter. Forward-looking statements speak as of the date they are made, and Kohl’s undertakes no obligation to update them. Non-GAAP Financial Measures In addition, this presentation contains non-GAAP financial measures, including Free Cash Flow. Reconciliations of all non-GAAP measures to the most directly comparable GAAP measures are included in the Appendix of this presentation. 2
Our 2023 Priorities 6 2023 Outlook & 11 Long-term Strategy Q4 2022 Results 15 3
Kohl's has built a solid foundation for growth Customers Stores Stores Active Customers Stores in 49 states 65M+ 1,170 Loyalty Members 30M+ Stores with 600+ Sephora Of Americans live Accessible and within 15 miles of 80% Aspirational Brand a Kohl’s store Portfolio Digital Of digital sales Digital sales ~35% fulfilled by stores 32% penetration Website visits 1.6B Active App users 20M Digital sales CAGR 8% over the last 5 years 4 All figures 2022
Our 2023 Priorities 6
“Kohl’s has a solid foundation and a highly motivated team with a set of priorities to capitalize on what I see as a substantial opportunity to make a difference in the retail landscape,” commented Tom Kingsbury, Kohl’s chief executive officer. “Our efforts to drive the business are already underway. We are refining our strategy and re- establishing merchandise disciplines with a customer-centric focus across the organization. I am confident that our efforts and focus will drive improved, and more consistent, sales and Tom Kingsbury earnings performance over the long-term.” Chief Executive Officer 7
Our 2023 Priorities Enhance the Customer Experience Accelerate and Simplify Our Value Strategies Manage Inventory and Expenses with Discipline Strengthen the Balance Sheet 8
FOCUSED ON FOUR OVERARCHING PRIORITIES TO Drive Improved Sales and Profitability Enhance the Accelerate and Manage Inventory Customer Simplify Our and Expenses Strengthen the Experience Value Strategies with Discipline Balance Sheet • Sephora growth and • Simplified pricing • Heightened focus on • $1.5B ABL enhances expansion inventory control processes liquidity position and • Greater consistency in our to increase inventory turns flexibility • Assortment rebalance to marketing offers capture multiple lifestyles • Planning inventory down • Debt reduction in 2023 • Leverage industry leading mid-single digits % to • Create an exciting in-store loyalty program (Kohl’s • Remain committed to increase ability to chase experience Cash, Kohl’s Rewards, long-term leverage target Kohl’s Card) • Marketing efficiency of 2.5x • Focus on gifting • Co-brand credit card • Benefit from organization • Lower capital spend in • Drive digital growth launch realignment 2023 9
Driving continued growth through Sephora at Kohl’s Delivering incremental $2 billion sales and traffic sales goal by 2025 and acquiring new customers • Successfully opened ~600 Sephora shops to date, including ~400 in 2022 • Achieved notable beauty market share gains in Q4, cementing Highly Sephora at Kohl’s as a major player in the beauty industry as the ~50% of team successfully capitalized on the holiday selling period accretive Sephora baskets • In 2023, opening an additional 250 Sephora shops, taking our operating have an additional total to 850 2,500 sq. ft. shops. In addition, opening 50 smaller category purchased format Sephora shops by the end of the year, with plan to roll out margin to remainder of chain by 2025. • Significant return on investment with expected payback period of less than 3.5 years 10
2023 Outlook & Long-term Strategy 11
2023 Outlook Metric Full Year Guidance (2%) to (4%) versus 2022, Net Sales includes a 1% benefit from the 53rd week Operating Margin Approximately 4.0% EPS $2.10 to $2.70 12
Focused on returning balance sheet to historical strength through balanced capital allocation strategy • Committed to rebuilding cash balance and reducing leverage to our long-term target of 2.5 times • Will continue to prioritize investments in the business, followed by our commitment to the dividend with excess cash deployed for liability management and share repurchases • We remain firmly committed to the health of our balance sheet and capital allocation decisions going forward will continue to reflect this priority Recent Actions and Forward Commitments Strategic Investment Commitment to Share in the Business the Dividend Revolver Debt Reduction Repurchases Planning to invest $600 Will continue to prioritize Replaced and upsized Retired $164 million of Not planning on • • • • • million to $650 million current dividend, which revolver in January 2023 to February 2023 bond repurchasing any additional through capex in 2023 represents a healthy yield $1.5 billion secured facility, maturities in early Q1 2023, shares until our balance for our shareholders enhancing our liquidity and and expect to retire an sheet is strengthened on a flexibility additional $111 million of path towards our long-term Key investments include 250 • December 2023 bond leverage target of 2.5 times Sephora shops, a smaller On February 21, the Board • maturities later this year Sephora format in 50 declared a quarterly cash Utilizing revolver to fund • additional stores, store dividend of $0.50 per share working capital and the refreshes, as well as 7 new payable to shareholders on bond retirement in Q1, and stores, including one March 29, 2023 will sequentially work the relocation balance down with no anticipated borrowings at year-end 13
Committed to Creating Long-Term Value Kohl’s Long-term Financial Framework SALES GROWTH OPERATING MARGIN EPS GROWTH Low-Single Mid-to-High 7% to 8% + = Digits % Single Digits % Capital Allocation Principles Strong Significant Capital Invest in Growth Balance Sheet Returns 14
Q4 2022 Results 15
Q4 2022 Summary Key Takeaways Q4 2022 • Net sales declined (7.2%) versus Q4 2021; comparable sales declined (6.6%) • Our fourth quarter results reflect an ongoing challenging macroeconomic • Gross margin decreased (1,016 bps) compared to last year driven primarily by increased clearance markdowns to reduce inventory and product cost inflation, and to a lesser extent environment as well as a meaningful gross shrink and freight costs margin impact related to inventory actions we took to best position the business for • SG&A expense decreased (0.6%) benefiting from lower marketing and distribution costs, offset 2023 by higher store expenses driven by wage headwinds • Operating loss of $302 million and net loss of $273 million, or ($2.49) per diluted share • Sephora at Kohl’s achieved high-single • Inventory increased 4% year-over-year and ended the year generally in line with sales digits percent comparable beauty sales performance when compared to 2019 growth in the 200 shops opened in 2021, better than expected sales in the ~400 shops opened in 2022 and strong digital sales growth • Subsequent to the end of the quarter, retired $164 million of outstanding bonds at maturity, showcasing commitment to returning balance sheet to its historical strength 16 16
Q4 Key Metrics Consolidated Statement of Operations Three Months Ended (Dollars in Millions) January 28, 2023 January 29, 2022 Net Sales $ 5,775 $ 6,220 Total Revenue 6,019 6,499 Gross Margin Rate 23.0% 33.2% SG&A 1,677 1,687 Depreciation 200 207 Operating (Loss) Income (302) 450 Interest Expense 78 65 (Benefit) Provision for Income Taxes (107) 86 Net Income (273) 299 Diluted EPS ($2.49) $2.20 Key Balance Sheet Items January 28, 2023 January 29, 2022 (Dollars in Millions) Cash and Cash Equivalents $ 153 $ 1,587 Merchandise Inventories 3,189 3,067 Accounts Payable 1,330 1,683 Short-term debt 85 0 Current portion of Long-term debt 275 0 Long-term Debt 1,637 1,910 Key Cash Flow items January 28, 2023 (Dollars in Millions) Three Months Ended Twelve Months Ended Operating Cash Flow $ 707 $ 282 Capital Expenditures (93) (826) Net, Finance lease and Financing obligations (23) (95) (1) $ 591 $ (639) Free Cash Flow 17 (1) - Free Cash Flow is a non-GAAP financial measures. Please refer to the reconciliation included in the Appendix for more information.
Q4 2022 Gross Margin & SG&A Expense Performance Gross Margin SG&A Expense Deleveraged (190 bps) vs Q4 2021 Decreased (1,016 bps) versus Q4 2021 $1,687M $1,677M 33.2% 23.0% % Total 26.0% Revenue 27.9% Q4 2021 Q4 2022 Q4 2021 Q4 2022 Q4 2022 Gross Margin Takeaways Q4 2022 SG&A Takeaways • Clearance markdowns impacted margin by approximately 750 bps • Reduced marketing spend and distribution costs driven by lower digital sales • Cost inflation impacted margin by approximately 200 bps • Higher store expenses driven by wage headwinds • Higher shrink and freight expenses 18
Appendix 19
Reconciliations Free Cash Flow January 28, 2023 ($ in millions) Three Months Ended Twelve Months Ended Net cash provided by operating activities $ 707 $ 282 Acquisition of property and equipment (93) (826) Finance lease and financing obligation payments (25) (106) Proceeds from financing obligations 2 11 Free Cash Flow $ (639) $ 591 20
