Attached files

file filename
EX-32.1 - CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER - KOHLS Corpex32114.htm
XML - IDEA: XBRL DOCUMENT - KOHLS CorpR19.htm
XML - IDEA: XBRL DOCUMENT - KOHLS CorpR21.htm
XML - IDEA: XBRL DOCUMENT - KOHLS CorpR1.htm
XML - IDEA: XBRL DOCUMENT - KOHLS CorpR20.htm
XML - IDEA: XBRL DOCUMENT - KOHLS CorpR22.htm
XML - IDEA: XBRL DOCUMENT - KOHLS CorpR15.htm
XML - IDEA: XBRL DOCUMENT - KOHLS CorpR7.htm
XML - IDEA: XBRL DOCUMENT - KOHLS CorpR12.htm
XML - IDEA: XBRL DOCUMENT - KOHLS CorpR16.htm
XML - IDEA: XBRL DOCUMENT - KOHLS CorpR13.htm
XML - IDEA: XBRL DOCUMENT - KOHLS CorpR23.htm
XML - IDEA: XBRL DOCUMENT - KOHLS CorpR2.htm
XML - IDEA: XBRL DOCUMENT - KOHLS CorpR5.htm
XML - IDEA: XBRL DOCUMENT - KOHLS CorpR14.htm
XML - IDEA: XBRL DOCUMENT - KOHLS CorpR3.htm
EXCEL - IDEA: XBRL DOCUMENT - KOHLS CorpFinancial_Report.xls
XML - IDEA: XBRL DOCUMENT - KOHLS CorpR9.htm
XML - IDEA: XBRL DOCUMENT - KOHLS CorpR11.htm
XML - IDEA: XBRL DOCUMENT - KOHLS CorpR8.htm
XML - IDEA: XBRL DOCUMENT - KOHLS CorpR6.htm
XML - IDEA: XBRL DOCUMENT - KOHLS CorpR18.htm
XML - IDEA: XBRL DOCUMENT - KOHLS CorpR10.htm
XML - IDEA: XBRL DOCUMENT - KOHLS CorpR4.htm
XML - IDEA: XBRL DOCUMENT - KOHLS CorpR17.htm
EX-32.2 - CERTIFICATION OF THE CHIEF FINANCIAL OFFICER - KOHLS Corpex32214.htm
EX-31.2 - CERTIFICATION OF THE CHIEF FINANCIAL OFFICER - KOHLS Corpexhibit3122.htm
EX-31.1 - CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER - KOHLS Corpexhibit3112.htm
EX-10.2 - AGREEMENT - KOHLS Corpexhibit102.htm
EX-10.1 - OFFER LETTER - KOHLS Corpexhibit101.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended May 4, 2013

OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
          
For the Transition period from ________ to _________ 

Commission file number 1-11084
 
KOHL’S CORPORATION
(Exact name of registrant as specified in its charter)
Wisconsin
 
39-1630919
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
 
 
N56 W17000 Ridgewood Drive,
Menomonee Falls, Wisconsin
 
53051
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code (262) 703-7000
 
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ý    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
 
ý

Accelerated filer
 
¨
 
 
 
 
Non-accelerated filer
 
¨¬ (Do not check if a smaller reporting company)

Smaller reporting company
 
¨
Indicate by a check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes  ¨    No  ý
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: June 1, 2013 Common Stock, Par Value $0.01 per Share, 221,470,296 shares outstanding.



KOHL’S CORPORATION
INDEX
 




PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

KOHL’S CORPORATION
CONSOLIDATED BALANCE SHEETS
(In Millions)
 
 
May 4,
2013
 
February 2,
2013
 
April 28,
2012
Assets
(Unaudited)
 
(Audited)
 
(Unaudited)
Current assets:
 
 
 
 
 
Cash and cash equivalents
$
518

 
$
537

 
$
1,029

Merchandise inventories
3,961

 
3,748

 
3,454

Deferred income taxes
138

 
122

 
119

Other
294

 
312

 
277

Total current assets
4,911

 
4,719

 
4,879

Property and equipment, net
8,822

 
8,872

 
8,961

Long-term investments
58

 
53

 
156

Other assets
259

 
261

 
266

Total assets
$
14,050

 
$
13,905

 
$
14,262

 
 
 
 
 
 
Liabilities and Shareholders’ Equity
 
 
 
 
 
Current liabilities:
 
 
 
 
 
Accounts payable
$
1,452

 
$
1,307

 
$
1,609

Accrued liabilities
1,023

 
986

 
1,132

Income taxes payable
117

 
137

 
80

Current portion of capital lease and financing obligations
107

 
105

 
98

Total current liabilities
2,699

 
2,535

 
2,919

Long-term debt
2,492

 
2,492

 
2,141

Capital lease and financing obligations
1,938

 
1,956

 
2,008

Deferred income taxes
368

 
362

 
421

Other long-term liabilities
532

 
512

 
473

Shareholders’ equity:
 
 
 
 
 
Common stock
4

 
4

 
4

Paid-in capital
2,463

 
2,454

 
2,359

Treasury stock, at cost
(7,354
)
 
(7,243
)
 
(6,284
)
Accumulated other comprehensive loss
(40
)
 
(45
)
 
(50
)
Retained earnings
10,948

 
10,878

 
10,271

Total shareholders’ equity
6,021

 
6,048

 
6,300

Total liabilities and shareholders’ equity
$
14,050

 
$
13,905

 
$
14,262

See accompanying Notes to Consolidated Financial Statements


3


KOHL’S CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In Millions, Except per Share Data)
 
 
Three Months Ended
 
May 4,
2013
 
April 28,
2012
Net sales
$
4,199

 
$
4,243

Cost of merchandise sold (exclusive of depreciation shown separately below)
2,671

 
2,719

Gross margin
1,528

 
1,524

Operating expenses:
 
 
 
Selling, general, and administrative
997

 
1,002

Depreciation and amortization
214

 
201

Operating income
317

 
321

Interest expense, net
83

 
82

Income before income taxes
234

 
239

Provision for income taxes
87

 
85

Net income
$
147

 
$
154

 
 
 
 
Net income per share:
 
 
 
Basic
$
0.66

 
$
0.63

Diluted
$
0.66

 
$
0.63

 
 
 
 
Dividends declared and paid per share
$
0.35

 
$
0.32

See accompanying Notes to Consolidated Financial Statements

KOHL’S CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(In Millions)
 
Three Months Ended
 
May 4,
2013
 
April 28,
2012
Net income
$
147

 
$
154

Other comprehensive income, net of tax:
 
 
 
Unrealized gains on investments
4

 
2

Reclassification adjustment for interest expense on interest
     rate derivative included in net income
1

 
1

Other comprehensive income
5

 
3

Comprehensive income
$
152

 
$
157

See accompanying Notes to Consolidated Financial Statements

4


KOHL’S CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(Unaudited)
(In Millions, Except per Share Data)
 
 
Common Stock
 
Paid-In Capital
 
Treasury Stock
Accumulated Other Comprehensive Loss
Retained Earnings
 
 
 
Shares
 
Amount
 
Shares
 
Amount
 
Total
Balance at February 2, 2013
360

 
$
4

 
$
2,454

 
(138
)
 
$
(7,243
)
 
$
(45
)
 
$
10,878

 
$
6,048

Comprehensive income

 

 

 

 

 
5

 
147

 
152

Stock options and awards
1

 

 
18

 

 

 

 

 
18

Net income tax impact from
    stock-based compensation

 

 
(9
)
 

 

 

 

 
(9
)
Dividends paid ($0.35 per common share)

 

 

 

 
1

 

 
(77
)
 
(76
)
Treasury stock purchases

 

 

 
(2
)
 
(112
)
 

 

 
(112
)
Balance at May 4, 2013
361

 
$
4

 
$
2,463

 
(140
)
 
$
(7,354
)
 
$
(40
)
 
$
10,948

 
$
6,021

See accompanying Notes to Consolidated Financial Statements


5


KOHL’S CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In Millions)

 
Three Months Ended
 
May 4, 2013
 
April 28, 2012
Operating activities
 
 
 
Net income
$
147

 
$
154

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
214

 
201

Share-based compensation
9

 
12

Excess tax benefits from share-based compensation
(1
)
 
(1
)
Deferred income taxes
(13
)
 
(14
)
Other non-cash revenues and expenses
11

 
(1
)
Changes in operating assets and liabilities:
 
 
 
Merchandise inventories
(210
)
 
(236
)
Other current and long-term assets
21

 
17

Accounts payable
145

 
376

Accrued and other long-term liabilities
11

 
(37
)
Income taxes
(29
)
 
(54
)
Net cash provided by operating activities
305

 
417

Investing activities
 
 
 
Acquisition of property and equipment
(135
)
 
(177
)
Sales of investments in auction rate securities
1

 
1

Other
11

 

Net cash used in investing activities
(123
)
 
(176
)
Financing activities
 
 
 
Treasury stock purchases
(109
)
 
(325
)
Dividends paid
(77
)
 
(77
)
Proceeds from financing obligations

 
3

Capital lease and financing obligation payments
(24
)
 
(27
)
Proceeds from stock option exercises
8

 
8

Excess tax benefits from share-based compensation
1

 
1

Net cash used in financing activities
(201
)
 
(417
)
Net decrease in cash and cash equivalents
(19
)
 
(176
)
Cash and cash equivalents at beginning of period
537

 
1,205

Cash and cash equivalents at end of period
$
518

 
$
1,029

Supplemental information:
 
 
 
Interest paid, net of capitalized interest
$
61

 
$
52

Income taxes paid
128

 
155

Non-Cash Investing and Financing Activities
 
 
 
Property and equipment acquired through additional liabilities
$
23

 
$
27

See accompanying Notes to Consolidated Financial Statements

6

KOHL’S CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1. Basis of Presentation
The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for fiscal year end financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. For further information, refer to the financial statements and related footnotes included in our Form 10-K for the fiscal year ended February 2, 2013 (Commission File No. 1-11084) as filed with the Securities and Exchange Commission on March 22, 2013.
Due to the seasonality of our business, results for any quarter are not necessarily indicative of the results that may be achieved for a full fiscal year. In addition, quarterly results of operations may be impacted by the timing and amount of sales and costs associated with the opening of new stores.
We operate as a single business unit.
To conform to the current year presentations, we have corrected the presentation of $30 million of deferred revenues that were previously recorded as a reduction to merchandise inventory as of April 28, 2012.

    
2. Debt
Long-term debt consists of the following non-callable and unsecured senior debt:
 
May 4, 2013
and
February 2, 2013
 
April 28, 2012
Maturing
Effective
Rate
 
Out-
standing
 
Effective
Rate
 
Out-
standing
 
(Dollars in Millions)
2017
6.31
%
 
$
650

 
6.31
%
 
$
650

2021
4.81
%
 
650

 
4.81
%
 
650

2023
3.25
%
 
350

 

 

2029
7.36
%
 
200

 
7.36
%
 
200

2033
6.05
%
 
300

 
6.05
%
 
300

2037
6.89
%
 
350

 
6.89
%
 
350

Total senior debt
5.63
%
 
2,500

 
6.01
%
 
2,150

Unamortized debt discount
 
 
(8
)
 
 
 
(9
)
Long-term debt
 
 
$
2,492

 
 
 
$
2,141


3. Fair Value Measurements
ASC No. 820, “Fair Value Measurements and Disclosures,” requires fair value measurements be classified and disclosed in one of the following pricing categories:
 
Level 1:
  
Financial instruments with unadjusted, quoted prices listed on active market exchanges.
 
 
Level 2:
  
Financial instruments lacking unadjusted, quoted prices from active market exchanges, including over-the-counter traded financial instruments. The prices for the financial instruments are determined using prices for recently traded financial instruments with similar underlying terms as well as directly or indirectly observable inputs, such as interest rates and yield curves that are observable at commonly quoted intervals.
 
 
Level 3:
  
Financial instruments that are not actively traded on a market exchange. This category includes situations where there is little, if any, market activity for the financial instrument. The prices are determined using significant unobservable inputs or valuation techniques.

7

KOHL’S CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

    
The following table summarizes our financial instruments:
 
 
May 4, 2013
 
February 2, 2013
 
April 28, 2012
 
Pricing Category
Cost
Fair Value
 
Cost
Fair Value
 
Cost
Fair Value
 
 
(In Millions)
Cash and cash equivalents
Level 1
$
518

$
518

 
$
537

$
537

 
$
1,029

$
1,029

Long-term investments
Level 3
83

58

 
84

53

 
192

156

Debt
Level 1
2,492

2,802

 
2,492

2,702

 
2,141

2,435


Our long-term investments consist primarily of investments in auction rate securities (“ARS”). The fair value for our ARS were based on third-party pricing models which utilized a discounted cash flow model for each of the securities as there was no recent activity in the secondary markets in these types of securities. This model used a combination of observable inputs which were developed using publicly available market data obtained from independent sources and unobservable inputs that reflect our own estimates of the assumptions that market participants would use in pricing the investments. Observable inputs include interest rate currently being paid, maturity and credit ratings.

Unobservable inputs include expected redemption date and discount rate. We assumed a seven-year redemption period in valuing our ARS. We intend to hold our ARS until maturity or until we can liquidate them at par value. Based on our other sources of income, we do not believe we will be required to sell them before recovery of par value. In some cases, holding the security until recovery may mean until maturity, which ranges from 2037 to 2039. The discount rate was calculated using the closest match available for other insured asset backed securities. Discount rates ranged from 6.57% to 9.47%. The weighted-average discount rate was 7.64%. A market failure scenario was employed as recent successful auctions of these securities were very limited. Assuming a longer redemption period and a higher discount rate would result in a lower fair market value. Similarly, assuming a shorter redemption period and a lower discount rate would result in a higher fair market value.

The following table presents a rollforward of our long-term investments:
 
May 4,
2013
 
April 28,
2012
 
(In Millions)
Balance at beginning of year
$
53

 
$
153

Sales
(1
)
 
(1
)
Unrealized gains
6

 
4

Balance at end of period
$
58

 
$
156


4. Stock-Based Compensation
The following table summarizes our stock-based compensation expense:
 
Three Months Ended
 
May 4, 2013
 
April 28, 2012
 
(In Millions)
Stock options
$
3

 
$
5

Restricted shares
6

 
7

Total stock-based compensation expense
$
9

 
$
12



8

KOHL’S CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following table summarizes stock-based compensation grants:
 
Three Months Ended
 
May 4, 2013
 
April 28, 2012
 
(In Thousands)
Stock options granted
414

 
916

Restricted shares, excluding shares earned in lieu of cash dividends, granted
654

 
731

Total stock-based compensation grants
1,068

 
1,647

Weighted average fair value at grant date:
 
 
 
Stock options
$
10.18


$
11.80

Restricted shares
$
46.39

 
$
48.60


5. Contingencies

We are involved in various legal matters arising in the normal course of business. In the opinion of management, the outcome of such proceedings and litigation will not have a material adverse impact on our consolidated financial statements.

6. Net Income Per Share
The following table summarizes our basic and diluted net income per share calculations:
 
Three Months Ended
 
May 4,
2013
 
April 28,
2012
 
(In Millions)
Numerator—Net income
$
147

 
$
154

Denominator—Weighted average shares:
 
 
 
Basic
222

 
243

Impact of dilutive employee stock options
1

 
2

Diluted
223

 
245

Antidilutive shares
12

 
12

 
 
 
 




9


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

For purposes of the following discussion, all references to “the quarter” and “the first quarter” are for the 13-week fiscal periods ended May 4, 2013 and April 28, 2012.
The following discussion should be read in conjunction with our Consolidated Financial Statements and the related notes included elsewhere in this report, as well as the financial and other information included in our 2012 Annual Report on Form 10-K (our “2012 Form 10-K”). The following discussion may contain forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could materially differ from those discussed in these forward-looking statements.  Factors that could cause or contribute to those differences include, but are not limited to, those discussed elsewhere in this report and in our 2012 Form 10-K (particularly in “Risk Factors”).

Executive Summary

Total sales for the quarter decreased 1.0% and comparable store sales decreased 1.9% from the first quarter of 2012. The decrease in comparable store sales reflects lower selling prices per unit and fewer transactions, partially offset by higher units per transaction. E-Commerce revenues increased 31% and contributed 210 basis points to our comparable store sales.

Despite lower sales, our diluted earnings per share increased 5% to $0.66 in the first quarter of 2013. Net income was $147 million for the current year quarter and $154 million ($0.63 per diluted share) in the prior year quarter. Partially offsetting the lower sales were a 47 basis point increase in gross margin as a percent of sales and strong expense management.

We operated 1,155 stores as of May 4, 2013 and 1,134 stores as of April 28, 2012. We opened nine new stores during the first quarter of 2013 and plan to open three more stores in the Fall season. Additionally, we plan to remodel 30 stores in the Fall season.
Results of Operations
Net sales.
Net sales decreased $44 million, or 1.0%, to $4.2 billion in the first quarter of 2013. On a comparable store basis, sales decreased 1.9% for the quarter. We define comparable store sales as sales from stores (including relocated and remodeled stores) open throughout the full current and prior fiscal periods and from E-Commerce.
The following table summarizes the changes in sales during the quarter:
 
$
 
%
 
(Dollars in Millions)
Comparable store sales:
 
 
 
Stores
$
(160
)
 
(4.0
)%
E-Commerce
78

 
31.2

Total
(82
)
 
(1.9
)
New stores and other revenues
38

 

Decrease in net sales
$
(44
)
 
(1.0
)%
 
 
 
 
 Drivers of the changes in comparable store sales during the quarter were as follows:
Selling price per unit
(1.1
)%
Units per transaction
2.4

Average transaction value
1.3

Number of transactions
(3.2
)
Comparable store sales
(1.9
)%

The decrease in selling price per unit was due to lower prices and higher penetration of clearance merchandise, partially offset by higher selling prices on regular-priced merchandise. Units per transaction increased during the quarter as customers purchased more items in response to the lower prices. The number of transactions declined, primarily as weather negatively impacted customer visits early in the quarter.

10



Sales in the Midwest, Mid-Atlantic and Northeast, which are our most weather-sensitive regions, were negatively impacted by colder than normal temperatures in the early months of the quarter. When the weather normalized, we saw notable sales improvements in these regions. The West was the strongest region and was the only region which reported a positive comparable sales increase during the quarter. The Midwest, Northeast, Southeast and South Central regions all reported mid-single digit decreases and the Mid-Atlantic region reported a high-single digit decrease in comparable store sales.

E-Commerce revenue increased 31% to $330 million for the quarter. The increase is primarily due to increased transactions. The increases are the result of our investments in this business including digital marketing to drive traffic to the site and the availability of additional merchandise offerings.
By line of business, all categories reported modest sales declines. Increased sales in basics and other non-seasonal merchandise were more than offset by lower sales in seasonal merchandise categories. Home, Accessories and Footwear reported sales declines that were better than the company average. Home reported strong sales in electrics and luggage. In the Footwear business, athletic shoes reported the largest sales increase. Bath & beauty, watches and sterling silver jewelry reported the largest sales increases in the Accessories business. Sales declines in the Women's business were consistent with the company average. In Women's, the active and fitness category reported the largest sales increase. Sales in the Men's and Children's businesses decreased more than the company average. In Men's, the tailored and dress category reported the strongest sales. Children's reported consistent sales decreases across all apparel categories.

Gross margin.

Gross margin includes the total cost of products sold, including product development costs, net of vendor payments other than reimbursement of specific, incremental and identifiable costs; inventory shrink; markdowns; freight expenses associated with moving merchandise from our vendors to our distribution centers; shipping and handling expenses of E-Commerce sales; and terms cash discount. Our gross margin may not be comparable with that of other retailers because we include distribution center costs in selling, general and administrative expenses while other retailers may include these expenses in cost of merchandise sold.
    
Gross margin increased $4 million to $1.5 billion for the quarter. The following table summarizes gross margin as a percent of sales by channel:
 
Stores
 
E-Commerce
 
Total
2013
 
 
 
 
 
Merchandise margin
37.1
%
 
36.6
%
 
37.0
%
Shipping impact

 
(8.1
)
 
(0.6
)
Gross margin
37.1
%
 
28.5
%
 
36.4
%
 
 
 
 
 
 
2012
 
 
 
 
 
Merchandise margin
36.5
%
 
35.8
%
 
36.5
%
Shipping impact

 
(9.2
)
 
(0.6
)
Gross margin
36.5
%
 
26.6
%
 
35.9
%
 
 
 
 
 
 
Increase (Decrease)
 
 
 
 
 
Merchandise margin
57 bp

 
76 bp

 
57 bp

Shipping impact

 
108

 
(10
)
Gross margin
57 bp

 
184 bp

 
47 bp



11


The following table summarizes the drivers of the changes in gross margin as a percent of sales:
    Merchandise margin:
 
 
          Stores
52

bp
          E-Commerce
5

 
    E-Commerce shipping
(10
)
 
    Total increase
47

bp
The increases in merchandise margin reflect lower costs and reduced inventory shortage. The decrease in gross margin attributable to E-Commerce shipping is due to growth in this business, partially offset by lower shipping losses. E-Commerce decreased our gross margin rate by approximately 70 basis points for the quarter. Our E-Commerce business currently has a lower gross margin than our stores due to the mix of products sold on-line and free or related shipping promotions. As our E-Commerce business grows, it also has a more significant impact on our overall gross margin results.
Selling, general and administrative expenses.
 
 
 
 
 
Decrease
 
2013
 
2012
 
$
 
%
 
(Dollars in Millions)
Selling, general, and administrative expenses
$
997

 
$
1,002

 
$
(5
)
 
(1
)%
As a percent of net sales
23.7
%
 
23.6
%
 
 
 
 
Selling, general and administrative expenses (“SG&A”) include compensation and benefit costs (including stores, headquarters, buying and merchandising and distribution centers); occupancy and operating costs of our retail, distribution and corporate facilities; freight expenses associated with moving merchandise from our distribution centers to our retail stores and among distribution and retail facilities; advertising expenses, offset by vendor payments for reimbursement of specific, incremental and identifiable costs; net revenues from our Kohl’s credit card operations; and other administrative revenues and expenses. SG&A also includes the costs incurred prior to new store openings, such as advertising, hiring and training costs for new employees, processing and transporting initial merchandise, and rent expense. We do not include depreciation and amortization in SG&A. The classification of these expenses varies across the retail industry.
SG&A decreased $5 million, or 1%, for the quarter. The decrease in SG&A reflects lower store payroll, remodel costs and marketing expenses and higher net revenues from our credit card operations. These decreases were partially offset by higher distribution center, information technology ("IT") and fixed store costs. SG&A as a percent of sales increased, or "deleveraged," by approximately 10 basis points for the quarter.
Store payroll costs continued to be well-managed despite volatility in our sales during the quarter. Remodel costs declined as all 2013 remodels will occur in the Fall. Rent-related and other fixed store costs deleveraged due to the lower than planned sales.
Advertising reported significant leverage during the quarter, primarily due to temporary reductions in spending as we refocus our spending to increase the impact of our marketing investments. 
Distribution centers did not leverage during the period due to growth in our E-Commerce business. IT costs also did not leverage due to continued investments in our technology infrastructure. We continue to improve our efficiency in E-Commerce fulfillment which reported significant leverage as a percent of E-Commerce sales.

Net revenues from our credit card operations increased approximately $10 million for the quarter. The increase was the result of higher finance charge revenues due to higher average receivables and higher late fees due to growth in the portfolio. Offsetting these increases were higher costs associated with a new credit card servicing platform.

12



Other Expenses.
 
 
 
 
 
Increase
 
2013
 
2012
 
$
 
%
 
(Dollars in Millions)
Depreciation and amortization
$
214

 
$
201

 
$
13

 
6
%
Interest expense, net
83

 
82

 
1

 
1
%
Provision for income taxes
87

 
85

 
2

 
2
%
Effective tax rate
37.0
%
 
35.5
%
 
 
 


The increase in depreciation and amortization is primarily due to technology investments across the company. The increase in interest expense is primarily due to the September 2012 debt issuance. The increase in the effective tax rate for the quarter was primarily due to favorable settlements of state tax audits during the first quarter of 2012.
Seasonality and Inflation
Our business, like that of most retailers, is subject to seasonal influences, with the major portion of sales and income typically realized during the second half of each fiscal year, which includes the back-to-school and holiday seasons. Approximately 15% of annual sales typically occur during the back-to-school season and 30% during the holiday season. Because of the seasonality of our business, results for any quarter are not necessarily indicative of the results that may be achieved for a full fiscal year. In addition, quarterly results of operations are impacted by the timing and amount of sales and costs associated with the opening of new stores.
Although we expect that our operations will be influenced by general economic conditions, including rising food, fuel and energy prices, we do not believe that inflation has had a material effect on our results of operations. However, there can be no assurance that our business will not be affected by such factors in the future. In 2012, we saw modest increases in apparel costs in the first six months and mid-single-digit decreases in the last six months of the year. In 2013, we expect to see modest decreases in apparel costs.

Financial Condition and Liquidity
Our primary ongoing cash requirements are for capital expenditures for new stores, remodels and IT spending and for seasonal and new store inventory purchases. Share repurchases and dividend payments to shareholders are currently other significant usages of cash. These payments are discretionary and can be discontinued at any time should we require cash for other uses. Our primary sources of funds are cash flows provided by operations, short-term trade credit and our lines of credit. Short-term trade credit, in the form of extended payment terms for inventory purchases, often represents a significant source of financing for merchandise inventories. Seasonal cash needs may be met by cash on hand and/or the line of credit available under our revolving credit facility. Our working capital and inventory levels typically build throughout the fall, peaking during the November and December holiday selling season.
 
 
 
 
 
Increase (Decrease)
 in Cash
 
2013
 
2012
 
$
 
%
Net cash provided by (used in):
(Dollars in Millions)
Operating activities
$
305

 
$
417

 
$
(112
)
 
(27
)%
Investing activities
(123
)
 
(176
)
 
53

 
30
 %
Financing activities
(201
)
 
(417
)
 
216

 
52
 %
Operating Activities. Operating activities generated $305 million of cash in 2013, compared to $417 million in 2012.
Merchandise inventory, excluding E-Commerce, increased 10% over April 28, 2012 to $3.2 million per store as we increased inventory during 2013 to more normalized levels. Accounts payable as a percent of inventory was 36.7% at May 4, 2013, compared to 46.6% at April 28, 2012. The decrease is primarily due to inventory turn deterioration and lower accounts payable balances, as we reduced our receipts at the end of the quarter in reaction to slower seasonal sales at the beginning of the quarter. 
Investing Activities. Net cash used in investing activities reflects a $42 million decrease in capital spending primarily due to fewer remodels and new stores, partially offset by higher technology spending.
Financing Activities. Financing activities used cash of $201 million in 2013 and $417 million in 2012.

13


We paid cash for treasury stock purchases of $109 million in 2013 and $325 million in 2012.

We paid cash dividends of $77 million in both 2013 and 2012. On May 15, 2013, our board of directors declared a quarterly cash dividend of $0.35 per common share. The dividend is payable June 26, 2013 to shareholders of record at the close of business on June 12, 2013.

Free Cash Flow.  We generated free cash flow of $146 million in 2013 compared to $216 million in 2012. The decrease is primarily due to lower cash from operating activities, partially offset by lower capital expenditures, as discussed in more detail above. Free cash flow is a non-GAAP financial measure which we define as net cash provided by operating activities and proceeds from financing obligations (which generally represent landlord reimbursements of construction costs) less capital expenditures and capital lease and financing obligations. Free cash flow should be evaluated in addition to, and not considered a substitute for, other financial measures such as net income and cash flow provided by operations. We believe that free cash flow represents our ability to generate additional cash flow from our business operations.

The following table reconciles net cash provided by operating activities (a GAAP measure) to free cash flow (a non-GAAP measure).
 
2013
 
2012
 
(In Millions)
Net cash provided by operating activities
$
305

 
$
417

Acquisition of property & equipment
(135
)
 
(177
)
Capital lease & financing obligation payments
(24
)
 
(27
)
Proceeds from financing obligations

 
3

Free cash flow
$
146

 
$
216


Key financial ratios. Key financial ratios that provide certain measures of our liquidity are as follows:
 
May 4, 2013
 
April 28, 2012
Liquidity Ratios:
 
 
 
Working capital (In Millions)
$
2,212

 
$
1,960

Current ratio
1.82

 
1.67

Debt/capitalization
43.0
%
 
40.3
%

The increases in working capital and the current ratio as of May 4, 2013 compared to April 28, 2012 are due to higher inventory levels and lower accounts payable and accrued liabilities, partially offset by lower cash balances. The increase in the debt/capitalization ratio reflects the issuance of $350 million of debt in September 2012 and lower capitalization, primarily due to share repurchases.

14


Debt Covenant Compliance. As of May 4, 2013, we were in compliance with all debt covenants and expect to remain in compliance during fiscal 2013.
 
(Dollars in Millions)
Total Debt
$
4,545

Permitted Exclusions
(8
)
 
 
Subtotal
4,537

Rent x 8
2,162

 
 
Included Indebtedness
$
6,699

 
 
Net Worth
$
6,021

Investments (accounted for under equity method)

 
 
Subtotal
6,021

Included Indebtedness
6,699

 
 
Capitalization
$
12,720

 
 
Leverage Ratio (a)
0.53

Maximum permitted Leverage Ratio
0.70

(a) Included Indebtedness divided by Capitalization

Contractual Obligations
There have been no significant changes in the contractual obligations disclosed in our 2012 Form 10-K.
Off-Balance Sheet Arrangements
We have not provided any financial guarantees as of May 4, 2013. We have not created, and are not party to, any special-purpose or off-balance sheet entities for the purpose of raising capital, incurring debt or operating our business. We do not have any arrangements or relationships with entities that are not consolidated into our financial statements that are reasonably likely to materially affect our liquidity or the availability of capital resources.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and assumptions that affect reported amounts. Management has discussed the development, selection and disclosure of its estimates and assumptions with the Audit Committee of our Board of Directors. There have been no significant changes in the critical accounting policies and estimates discussed in our 2012 Form 10-K.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

There have been no significant changes in the market risks described in our 2012 Form 10-K.

Item 4. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (the “Evaluation”) at a reasonable assurance level as of the last day of the period covered by this Report.
Based upon the Evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective at the reasonable assurance level. Disclosure controls and procedures are defined by Rules 13a-15(e) of the Securities Exchange Act of 1934 (the "Exchange Act") as controls and other procedures that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures.

15


It should be noted that the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving our stated goals under all potential future conditions, regardless of how remote.
(b) Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ended May 4, 2013 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1A. Risk Factors
There have been no significant changes in our risk factors from those described in our 2012 Form 10-K.
Forward-looking Statements
This report contains statements that may constitute forward-looking statements within the meaning of the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Those statements relate to developments, results, conditions or other events we expect or anticipate will occur in the future. Words such as “believes,” “anticipates,” “plans,” “expects” and similar expressions are intended to identify forward-looking statements. Without limiting the foregoing, these statements may relate to future outlook, revenues, earnings, store openings, planned capital expenditures, market conditions, new strategies and the competitive environment. Forward-looking statements are based on our management’s then current views and assumptions and, as a result, are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected. Any such forward-looking statements are qualified by the important risk factors, described in Item 1A of our 2012 Form 10-K, that could cause actual results to differ materially from those predicted by the forward-looking statements. Forward-looking statements relate to the date initially made, and we undertake no obligation to update them. An investment in our common stock or other securities carries certain risks. Investors should carefully consider the risks as stated in our 2012 Form 10-K and other risks which may be disclosed from time to time in our filings with the SEC before investing in our securities.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
We did not sell any securities during the quarter ended May 4, 2013 which were not registered under the Securities Act.
The following table contains information for shares repurchased and shares acquired from employees in lieu of amounts required to satisfy minimum tax withholding requirements upon the vesting of the employees’ restricted stock during the three fiscal months ended May 4, 2013:
Period
Total Number of Shares Purchased
 
Average Price Paid Per Share
 
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
 
Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
 
 
 
 
 
 
 
(In Millions)
February 3 – March 2, 2013
24,966

 
$
46.31

 

 
$
3,121

March 3 – April 6, 2013
1,928,686

 
46.94

 
1,778,039

 
3,037

April 7 – May 4, 2013
421,542

 
47.41

 
420,132

 
3,017

Total
2,375,194

 
$
47.01

 
2,198,171

 
$
3,017



16


 
 
 
Exhibit
Number
  
Description
10.1
 
Offer letter dated as of May 17, 2013 by and between Michelle Gass and Kohl's Department Stores, Inc.
 
 
 
10.2
 
Agreement dated as of May 20, 2013 by and between John Worthington and Kohl's Department Stores, Inc.
 
 
 
31.1
  
Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
31.2
  
Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
32.1
  
Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
32.2
  
Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
101.INS
  
XBRL Instance Document
 
 
101.SCH
  
XBRL Taxonomy Extension Schema
 
 
101.CAL
  
XBRL Taxonomy Extension Calculation Linkbase
 
 
101.DEF
  
XBRL Taxonomy Extension Definition Linkbase
 
 
101.LAB
  
XBRL Taxonomy Extension Label Linkbase
 
 
101.PRE
  
XBRL Taxonomy Extension Presentation Linkbase
 

SIGNATURES

Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
 
Kohl’s Corporation
(Registrant)
 
 
 
Date:
June 7, 2013
/s/ Wesley S. McDonald
 
 
Wesley S. McDonald
On behalf of the Registrant and as Senior Executive Vice President and Chief Financial Officer
(Principal Financial and Chief Accounting Officer)


17