UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended July 31,30, 20212022

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

img72428580_0.jpg 

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

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading

Symbol(s)

Name of each exchange on

which registered

Common Stock, $.01 par value

KSS

New York Stock Exchange

Preferred Stock Purchase Rights

—

New York Stock Exchange

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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer

☒

Accelerated Filer

☐

Non-Accelerated Filer

☐

Smaller Reporting Company

☐

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 pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by a check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: August 27, 202126, 2022 Common Stock, Par Value $0.01 per Share, 150,534,221116,638,020 shares outstanding.

KOHL’S CORPORATION

INDEX

PART I

FINANCIAL INFORMATION

3

Item 1.

Financial Statements:

3

Consolidated Balance Sheets

3

Consolidated Statements of Operations

4

Consolidated Statements of Changes in Shareholders' Equity

5

Consolidated Statements of Cash Flows

6

Notes to Consolidated Financial Statements

7

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

13

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

2120

Item 4.

Controls and Procedures

2120

PART II

OTHER INFORMATION

22

Item 1A.

Risk Factors

22

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

22

Item 5.

Other Information

22

Item 6.

Exhibits

23

Signatures

24

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

KOHL’S CORPORATION

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(Dollars in Millions)

July 31, 2021

January 30, 2021

August 1, 2020

July 30, 2022

January 29, 2022

July 31, 2021

Assets

 

 

 

 

Current assets:

 

 

Cash and cash equivalents

$2,569

$2,271

$2,428

$222

$1,587

$2,569

Merchandise inventories

2,733

2,590

2,698

4,034

3,067

2,733

Other

356

974

562

374

369

356

Total current assets

5,658

5,835

5,688

4,630

5,023

5,658

Property and equipment, net

7,107

6,689

6,970

8,228

7,304

7,107

Operating leases

2,301

2,398

2,418

2,296

2,248

2,301

Other assets

440

415

159

469

479

440

Total assets

$15,506

$15,337

$15,235

$15,623

$15,054

$15,506

 

 

Liabilities and Shareholders’ Equity

 

 

Current liabilities:

 

 

Accounts payable

$1,495

$1,476

$1,064

$1,497

$1,683

$1,495

Accrued liabilities

1,554

1,270

1,216

1,426

1,340

1,554

Borrowings under revolving credit facility

79

  —

Current portion of:

 

 

Finance lease and financing obligations

117

115

126

Long-term debt

164

  —

Finance leases and financing obligations

96

118

117

Operating leases

143

161

160

108

145

143

Total current liabilities

3,309

3,022

2,566

3,370

3,286

3,309

Long-term debt

1,909

2,451

3,450

1,747

1,910

1,909

Finance lease and financing obligations

1,906

1,387

1,356

Finance leases and financing obligations

2,830

2,133

1,906

Operating leases

2,532

2,625

2,637

2,568

2,479

2,532

Deferred income taxes

245

302

122

194

206

245

Other long-term liabilities

386

354

267

370

379

386

Shareholders’ equity:

 

 

Common stock

4

4

4

4

Paid-in capital

3,349

3,319

3,290

3,406

3,375

3,349

Treasury stock, at cost

(11,920)

(11,595)

(11,594)

           (13,151)

           (12,975)

           (11,920)

Retained earnings

13,786

13,468

13,137

14,285

14,257

13,786

Total shareholders’ equity

$5,219

$5,196

$4,837

$4,544

$4,661

$5,219

Total liabilities and shareholders’ equity

$15,506

$15,337

$15,235

$15,623

$15,054

$15,506

See accompanying Notes to Consolidated Financial Statements

3

Table of Contents

KOHL’S CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

Three Months Ended

Six Months Ended

Three Months Ended

Six Months Ended

(Dollars in Millions, Except per Share Data)

July 31, 2021

August 1, 2020

July 31, 2021

August 1, 2020

July 30, 2022

July 31, 2021

July 30, 2022

July 31, 2021

Net sales

$4,223

$3,213

$7,885

$5,373

$3,863

$4,223

$7,334

$7,885

Other revenue

224

194

449

462

224

224

468

449

Total revenue

4,447

3,407

8,334

5,835

4,087

4,447

7,802

8,334

Cost of merchandise sold

2,426

2,149

4,659

3,936

2,332

2,426

4,472

4,659

Operating expenses:

 

 

 

Selling, general, and administrative

1,241

1,050

2,411

2,116

1,283

1,241

2,576

2,411

Depreciation and amortization

210

219

421

446

206

210

406

421

Impairments, store closing, and other costs

0

(2)

0

64

(Gain) on sale of real estate

0

(127)

0

(127)

Operating income (loss)

570

118

843

(600)

Operating income

266

570

348

843

Interest expense, net

62

78

129

136

77

62

145

129

Loss on extinguishment of debt

0

201

0

  —

201

Income (loss) before income taxes

508

40

513

(736)

Provision (benefit) for income taxes

126

(7)

117

(242)

Net income (loss)

$382

$47

$396

$(494)

Net income (loss) per share:

 

 

Income before income taxes

189

508

203

513

Provision for income taxes

46

126

46

117

Net income

$143

$382

$157

$396

Net income per share:

 

Basic

$2.51

$0.31

$2.58

$(3.21)

$1.13

$2.51

$1.24

$2.58

Diluted

$2.48

$0.30

$2.55

$(3.21)

$1.11

$2.48

$1.22

$2.55

See accompanying Notes to Consolidated Financial Statements

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Table of Contents

KOHL’S CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(Unaudited)

Three Months Ended

Six Months Ended

Three Months Ended

Six Months Ended

(Dollars in Millions, Except per Share Data)

July 31, 2021

August 1, 2020

July 31, 2021

August 1, 2020

July 30, 2022

July 31, 2021

July 30, 2022

July 31, 2021

Common stock

 

 

 

 

Balance, beginning of period

$4

$4

$4

$4

$4

$4

$4

$4

Stock-based awards

  —

  —

  —

  —

  —

  —

  —

  —

Balance, end of period

$4

$4

$4

$4

$4

$4

$4

$4

 

 

 

 

Paid-in capital

 

 

 

 

Balance, beginning of period

$3,333

$3,289

$3,319

$3,272

$3,395

$3,333

$3,375

$3,319

Stock-based awards

16

1

30

18

11

16

31

30

Balance, end of period

$3,349

$3,290

$3,349

$3,290

$3,406

$3,349

$3,406

$3,349

 

 

 

 

Treasury stock, at cost

 

 

 

Treasury stock

 

Balance, beginning of period

$(11,663)

$(11,593)

$(11,595)

$(11,571)

$(13,150)

$(11,663)

$(12,975)

$(11,595)

Treasury stock purchases

(255)

  —

(301)

(8)

                    —

  (255)

                 (158)

  (301)

Stock-based awards

(3)

(1)

(25)

(21)

                     (2)

                     (3)

                   (20)

                   (25)

Dividends paid

1

  —

1

6

1

1

2

1

Balance, end of period

$(11,920)

$(11,594)

$(11,920)

$(11,594)

$(13,151)

$(11,920)

$(13,151)

$(11,920)

 

 

 

 

Retained earnings

 

 

 

 

Balance, beginning of period

$13,443

$13,090

$13,468

$13,745

$14,207

$13,443

$14,257

$13,468

Net income (loss)

382

47

396

(494)

Net income

143

382

157

396

Dividends paid

(39)

  —

(78)

(114)

                   (65)

  (39)

                 (129)

  (78)

Balance, end of period

$13,786

$13,137

$13,786

$13,137

$14,285

$13,786

$14,285

$13,786

 

 

 

 

Total shareholders' equity, end of period

$5,219

$4,837

$5,219

$4,837

$4,544

$5,219

$4,544

$5,219

 

 

 

 

Common stock

 

 

 

 

Shares, beginning of period

377

377

377

375

377

377

377

377

Stock-based awards

  —

  —

  —

2

  —

  —

  —

  —

Shares, end of period

377

377

377

377

377

377

377

377

Treasury stock

 

 

 

 

Shares, beginning of period

(220)

(219)

(219)

(219)

                 (249)

                 (220)

                 (246)

                 (219)

Treasury stock purchases

(5)

  —

(6)

  —

  —

  (5)

  (3)

  (6)

Shares, end of period

(225)

(219)

(225)

(219)

                 (249)

                 (225)

                 (249)

                 (225)

Total shares outstanding, end of period

152

158

152

158

128

152

128

152

 

 

 

 

Dividends paid per common share

$0.25

  —

$0.50

$0.704

$0.50

$0.25

$1.00

$0.50

See accompanying Notes to Consolidated Financial Statements

5

Table of Contents

KOHL’S CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

Six Months Ended

Six Months Ended

(Dollars in Millions)

July 31, 2021

August 1, 2020

July 30, 2022

July 31, 2021

Operating activities

 

 

Net income (loss)

$396

$(494)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

 

Net income

$157

$396

Adjustments to reconcile net income to net cash (used in) provided by operating activities:

 

Depreciation and amortization

421

446

406

421

Share-based compensation

25

14

26

25

Deferred income taxes

(57)

(132)

                   (12)

                  (57)

Impairments, store closing, and other costs

  —

48

(Gain) on sale of real estate

  —

(127)

Loss on extinguishment of debt

201

  —

  —

201

Non-cash inventory costs

  —

187

Non-cash lease expense

74

74

56

74

Other non-cash expense

9

10

5

9

Changes in operating assets and liabilities:

 

 

Merchandise inventories

(138)

656

                 (964)

                 (138)

Other current and long-term assets

590

(170)

                   (29)

590

Accounts payable

19

(142)

                 (185)

19

Accrued and other long-term liabilities

228

16

51

228

Operating lease liabilities

(76)

(82)

                   (57)

                  (76)

Net cash provided by operating activities

1,692

304

Net cash (used in) provided by operating activities

                 (546)

1,692

Investing activities

 

 

Acquisition of property and equipment

(191)

(196)

                 (548)

                 (191)

Proceeds from sale of real estate

4

193

4

4

Net cash used in investing activities

(187)

(3)

                 (544)

                 (187)

Financing activities

 

 

Proceeds from issuance of debt

500

2,097

  —

500

Net borrowings under revolving credit facility

79

  —

Deferred financing costs

(5)

(19)

  —

  (5)

Treasury stock purchases

(301)

(8)

                 (158)

                 (301)

Shares withheld for taxes on vested restricted shares

(25)

(20)

                   (20)

                  (25)

Dividends paid

(77)

(108)

                 (127)

                  (77)

Reduction of long-term borrowings

(1,044)

(497)

  —

  (1,044)

Premium paid on redemption of debt

(192)

  —

  —

  (192)

Finance lease and financing obligation payments

(65)

(44)

  (55)

                  (65)

Proceeds from financing obligations

5

4

Proceeds from stock option exercises

1

  —

1

1

Proceeds from financing obligations

4

3

Other

(3)

  —

  —

  (3)

Net cash (used in) provided by financing activities

(1,207)

1,404

Net increase in cash and cash equivalents

298

1,705

Net cash used in financing activities

                 (275)

              (1,207)

Net (decrease) increase in cash and cash equivalents

              (1,365)

298

Cash and cash equivalents at beginning of period

2,271

723

1,587

2,271

Cash and cash equivalents at end of period

$2,569

$2,428

$222

$2,569

Supplemental information

 

 

Interest paid, net of capitalized interest

$128

$108

$137

$128

Income taxes paid

43

137

49

43

See accompanying Notes to Consolidated Financial Statements

6

Table of Contents

KOHL’S CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation

The accompanying Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for fiscal year end Consolidated 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 Consolidated Financial Statements and related footnotes included in our Annual Report on Form 10-K for the fiscal year ended January 30, 202129, 2022 (Commission File No. 1-11084) as filed with the Securities and Exchange Commission.

Due to the seasonality of the business of Kohl’s Corporation (the “Company,” “Kohl’s,” “we,” “our,” or “us”) and the uncertainty surrounding the financial impact of the novel coronavirus (“COVID-19”) pandemic,, results for any quarter are not necessarily indicative of the results that may be achieved for a full fiscal year.

We operate as a single business unit.

Recent Accounting Pronouncements

We adopted the newdo not expect that any recently issued accounting standard on simplifying the accounting for income taxes (ASU 2019-12), effective at the beginning of fiscal 2021. The transition method (retrospective, modified retrospective, or prospective basis) related to the amendments depends on the applicable guidance, and all amendments for which there is no transition guidance specified are to be applied onpronouncements will have a prospective basis. There was no material impact on our financial statements due to adoption of the new standard.Consolidated Financial Statements.

2. Revenue Recognition

The following table summarizes net sales by line of business:

Three Months Ended

Six Months Ended

Three Months Ended

Six Months Ended

(Dollars in Millions)

July 31, 2021

August 1, 2020

July 31, 2021

August 1, 2020

July 30, 2022

July 31, 2021

July 30, 2022

July 31, 2021

Women's

$1,344

$951

$2,461

$1,544

$1,239

$1,344

$2,316

$2,461

Men's

942

598

1,629

961

865

942

1,575

1,629

Home

609

657

1,243

1,140

502

609

1,027

1,243

Accessories

458

403

848

771

Children's

463

395

931

664

414

463

825

931

Footwear

462

337

850

570

385

462

743

850

Accessories

403

275

771

494

Net Sales

$4,223

$3,213

$7,885

$5,373

$3,863

$4,223

$7,334

$7,885

Unredeemed gift cards and merchandise return card liabilities totaled $294 million as of July 30, 2022, $353 million as of January 29, 2022, and $281 million as of July 31, 2021. In the second quarter of 2022 and 2021, net sales recognized from gift cards redeemed in the current period and issued in prior years totaled $33939 million as of January 30, 2021, and $28338 million, as of August 1, 2020. Revenuerespectively. Year to date 2022 and 2021, net sales of $117113 million wasand $110 million, respectively, were recognized during the current period from gift cards redeemed during the current year from the January 30, 2021 ending balance.and issued in prior years.

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Table of Contents

3. Debt

Borrowings under the revolving credit facility, recorded as short-term debt, has $79 million outstanding as of July 30, 2022. No amounts were outstanding at January 29, 2022 or July 31, 2021.

Long-term debt, which includes drawsexcludes borrowings on the revolving credit facility, consists of the following unsecured and secured senior debt:

 

Outstanding

 

Outstanding

Maturity
(Dollars in Millions)

Effective
Rate

Coupon
Rate

July 31, 2021

January 30, 2021

August 1, 2020

Effective Rate

Coupon Rate

July 30,
2022

January 29,
2022

July 31,
2021

2023

3.25%

$164

$350

3.25%

$164

$164

2023

4.78%

4.75%

111

184

4.78%

4.75%

111

111

2025

9.50%

113

600

9.50%

113

113

2025

4.25%

353

650

4.25%

353

353

2029

7.36%

7.25%

42

42

7.36%

7.25%

42

42

2031

3.40%

3.38%

500

  —

3.40%

3.38%

500

500

2033

6.05%

6.00%

112

113

6.05%

6.00%

112

112

2037

6.89%

6.88%

101

101

6.89%

6.88%

101

101

2045

5.57%

5.55%

427

427

5.57%

5.55%

427

427

Outstanding unsecured senior debt

 

1,923

2,467

 

1,923

1,923

Unamortized debt discounts and deferred financing costs

 

(14)

(16)

(17)

 

           (12)

           (13)

           (14)

Unsecured senior debt

 

1,909

2,451

2,450

Current portion of unsecured senior debt

 

         (164)

  —

Long-term unsecured senior debt

 

$1,747

$1,910

$1,909

Effective interest rate

 

4.89%

5.90%

 

4.89%

4.89%

Secured senior debt

 

  —

1,000

Total long-term debt

 

$1,909

$2,451

$3,450

Our unsecured senior long-term debt is classified as Level 1, financial instruments with unadjusted, quoted prices listed on active market exchanges. The estimated fair value of our unsecured senior debt was $1.7 billion at July 30, 2022, $2.0 billion at January 29, 2022, and $2.2 billion at July 31, 2021, $2.8 billion at January 30, 2021, and $2.5 billion at August 1, 2020.2021.

NaN borrowing amounts were outstandingOur various debt agreements contain covenants including limitations on the credit facility in place asadditional indebtedness and certain financial tests. As of July 31, 2021 or January 30, 2021. At August 1, 2020, $1.0 billion was outstanding on the credit facility.

In March 2021,2022, we issued $500 millionwere in aggregate principal amount of 3.375% notescompliance with semi-annual interest payments beginning in November 2021. The notes include coupon rate step ups if our long-term debt is downgraded to below a BBB- credit rating by S&P Global Ratings or Baa3 by Moody’s Investors Service, Inc. The notes mature in May 2031. Proceedsall covenants of the issuance and cash on hand were used to pay the principal, premium, and accrued interest of the notes which were purchased as part of the cash tender offer in April 2021.

In April 2021, we completed a cash tender offer for $1.0 billion of senior unsecured debt. We recognized a $201 million loss on extinguishment ofvarious debt in the first quarter of 2021, which includes the $192 million tender premium paid to tendering note holders in accordance with the terms of the tender offer, a $6 million non-cash write-off of deferred financing costs and original issue discounts associated with the extinguished debt, and $3 million in other fees.agreements.

4. Leases

We lease certain property and equipment used in our operations. Some of our store leases include additional rental payments based on a percentage of sales over contractual levels or which are adjusted periodically for inflation. Our typical store lease has an initial term of 20 to 25 years and four to eight five-year renewal options.

Lease assets represent our right to use an underlying asset for the lease term. Lease assets are recognized at commencement date based on the value of the lease liability and are adjusted for any lease payments made to the lessor at or before commencement date, minus any lease incentives received and any initial direct costs incurred by the lessee.

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Lease liabilities represent our contractual obligation to make lease payments. At the commencement date, the lease liabilities equal the present value of minimum lease payments over the lease term. As the implicit interest rate is not readily identifiable in our leases, we estimate our collateralized borrowing rate to calculate the present value of lease payments.

Leases with a term of 12 months or less are excluded from the balance; we recognize lease expense for these leases on a straight-line basis over the lease term. We combine lease and non-lease components for new and modified leases.

During the first half of 2022, we opened 340 Sephora shop-in-shops within our Kohl's stores and now have a total of 540 open as of the end of the second quarter. We plan to open an additional 20060 shop-in-shops during the remainder

8

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of 2022, as well as at least 250 more shops in 2023. We are also working with Sephora shops within our Kohl's storesto have a Sephora presence in fall of 2021.the remaining approximately 300 stores. Due to the investments we are making in the Sephora shops,shop-in-shops, we are required to reassessreassessed our lease term when construction beginsbegan as these assets will have significant economic value to us when the lease term becomes exercisable. The impact of these assessments resulted in additional lease term, additional lease assets and liabilities, and, in some cases, changes to the classification.

The following tables summarize our operating and finance leases and where they are presented in our Consolidated Financial Statements:

Consolidated Balance Sheets

Consolidated Balance Sheets

 

 

Consolidated Balance Sheets

 

 

(Dollars in Millions)

Classification

July 31, 2021

January 30, 2021

Classification

July 30,
2022

January 29,
2022

July 31,
2021

Assets

 

 

Operating leases

Operating leases

$2,301

$2,398

Operating leases

$2,296

$2,248

$2,301

Finance leases

Property & equipment, net

1,226

708

Property and equipment, net

2,114

1,442

1,226

Total operating & finance leases

 

3,527

3,106

Total operating and finance leases

Total operating and finance leases

4,410

3,690

3,527

Liabilities

 

 

Current

 

 

Operating leases

Current portion of operating leases

143

161

Current portion of operating leases

108

145

143

Finance leases

Current portion of finance leases & financing obligations

83

76

Current portion of finance leases and financing obligations

78

87

83

Noncurrent

 

 

Operating leases

Operating leases

2,532

2,625

Operating leases

2,568

2,479

2,532

Finance leases

Finance leases & financing obligations

1,457

926

Finance leases and financing obligations

2,381

1,688

1,457

Total operating & finance leases

 

$4,215

$3,788

Total operating and finance leases

Total operating and finance leases

$5,135

$4,399

$4,215

Consolidated Statement of Operations

Consolidated Statement of Operations

Three Months Ended

Six Months Ended

Consolidated Statement of Operations

Three Months Ended

Six Months Ended

(Dollars in Millions)

Classification

July 31, 2021

Classification

July 30, 2022

July 31, 2021

July 30, 2022

July 31, 2021

Operating leases

Selling, general, and administrative

$79

$156

Selling, general, and administrative

$64

$79

$133

$156

Finance Leases

 

Finance leases

 

Amortization of leased assets

Depreciation and amortization

23

43

Depreciation and amortization

32

23

61

43

Interest on leased assets

Interest expense, net

27

52

Interest expense, net

36

27

68

52

Total operating and finance leases

 

$129

$251

 

$132

$129

$262

$251

Consolidated Statement of Cash Flows

Six Months Ended

(Dollars in Millions)

July 31, 2021

Cash paid for amounts included in the measurement of leased liabilities

Operating cash flows from operating leases

$165

Operating cash flows from finance leases

52

Financing cash flows from finance leases

47

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Consolidated Statement of Cash Flows

Six Months Ended

(Dollars in Millions)

July 30, 2022

July 31, 2021

Cash paid for amounts included in the measurement of leased liabilities

 

 

Operating cash flows from operating leases

$135

$165

Operating cash flows from finance leases

65

52

Financing cash flows from finance leases

44

47

The following table summarizes future lease payments by fiscal year:

July 31, 2021

July 30, 2022

(Dollars in millions)

Operating Leases

Finance Leases

Total

Operating Leases

Finance Leases

Total

2021

$143

$96

$239

2022

289

185

474

$124

$94

$218

2023

277

166

443

251

218

469

2024

248

151

399

233

210

443

2025

234

145

379

227

205

432

After 2025

3,492

2,467

5,959

2026

223

205

428

After 2026

3,617

3,722

7,339

Total lease payments

$4,683

$3,210

$7,893

$4,675

$4,654

$9,329

Amount representing interest

(2,008)

(1,670)

(3,678)

                (1,999)

                (2,195)

                (4,194)

Lease liabilities

$2,675

$1,540

$4,215

$2,676

$2,459

$5,135

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The following table summarizes weighted-average remaining lease term and discount rate:

July 31, 2021

January 30, 2021

July 30, 2022

January 29, 2022

Weighted-average remaining term (years)

 

 

Operating leases

20

19

20

20

Finance leases

19

18

21

20

Weighted-average discount rate

 

 

Operating leases

6%

6%

6%

6%

Finance leases

7%

10%

6%

7%

Other lease information is as follows:

Six Months Ended

Six Months Ended

(Dollars in Millions)

July 31, 2021

August 1, 2020

July 30, 2022

July 31, 2021

Property and equipment acquired (disposed) through:

 

Property and equipment acquired (disposed) through exchange of:

 

Finance lease liabilities

$569

$56

$730

$569

Operating lease liabilities

(29)

103

114

               (29)

Financing Obligations

Historical failed sale-leasebacks that did not qualify for sale-leaseback accounting upon adoption of ASC 842 continue to be accounted for as financing obligations.

The following tables summarize our financing obligations and where they are presented in our Consolidated Financial Statements:

Consolidated Balance Sheets

Consolidated Balance Sheets

 

 

Consolidated Balance Sheets

 

 

(Dollars in millions)

Classification

July 31, 2021

January 30, 2021

Classification

July 30,
2022

January 29,
2022

July 31,
2021

Assets

 

 

 

 

Financing obligations

Property & equipment, net

$60

$65

Property and equipment, net

$52

$55

$60

Liabilities

 

 

 

 

Current

Current portion of finance leases & financing obligations

34

39

Current portion of finance leases and financing obligations

18

31

34

Noncurrent

Finance leases & financing obligations

449

461

Finance leases and financing obligations

449

445

449

Total financing obligations

 

$483

$500

Total financing obligations

$467

$476

$483

Consolidated Statement of Operations

Consolidated Statement of Operations

Three Months Ended

Six Months Ended

Consolidated Statement of Operations

Three Months Ended

Six Months Ended

(Dollars in Millions)

Classification

July 31, 2021

Classification

July 30, 2022

July 31, 2021

July 30, 2022

July 31, 2021

Amortization of financing obligation assets

Depreciation and amortization

3

5

Depreciation and amortization

2

3

4

5

Interest on financing obligations

Interest expense, net

10

19

Interest expense, net

15

10

27

19

Total financing obligations

 

$13

$24

 

$17

$13

$31

$24

Consolidated Statement of Cash Flows

Six Months Ended

(Dollars in Millions)

July 30, 2022

July 31, 2021

Cash paid for amounts included in the measurement of financing obligations

 

 

Operating cash flows from financing obligations

$26

$19

Financing cash flows from financing obligations

11

18

Proceeds from financing obligations

5

4

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Consolidated Statement of Cash Flows

Six Months Ended

(Dollars in Millions)

July 31, 2021

Cash paid for amounts included in the measurement of financing obligations

Operating cash flows from financing obligations

$19

Financing cash flows from financing obligations

18

Proceeds from financing obligations

4

The following table summarizes future financing obligation payments by fiscal year:

July 31, 2021

July 30, 2022

(Dollars in millions)

Financing Obligations

Financing Obligations

2021

$34

2022

71

$37

2023

69

78

2024

64

77

2025

55

75

After 2025

369

2026

74

After 2026

957

Total lease payments

$662

$1,298

Non-cash gain on future sale of property

219

167

Amount representing interest

(398)

                       (998)

Financing obligation liability

$483

$467

The following table summarizes the weighted-average remaining term and discount rate for financing obligations:

July 31, 2021

January 30, 2021

July 30, 2022

January 29, 2022

Weighted-average remaining term (years)

9

8

14

10

Weighted-average discount rate

9%

7% 

13%

9%

5. Stock-Based Awards

The following table summarizes our stock-based awards activity for the six months ended July 31, 2021:30, 2022:

Stock Options

Nonvested Stock Awards

Performance Share Units

Stock Options

Nonvested Stock Awards

Performance Share Units

(Shares and Units in Thousands)

Shares

Weighted
Average
Exercise
Price

Shares

Weighted
Average
Grant Date
Fair Value

Units

Weighted
Average
Grant Date
Fair Value

Shares

Weighted
Average
Exercise
Price

Shares

Weighted
Average
Grant Date
Fair Value

Units

Weighted
Average
Grant Date
Fair Value

Balance - January 30, 2021

36

$52.15

3,451

$32.09

1,037

$49.95

Balance - January 29, 2022

12

$48.66

2,769

$36.17

856

$42.74

Granted

  —

614

56.56

211

58.99

  —

678

57.47

236

67.18

Exercised/vested

(19)

55.41

(1,057)

35.22

(211)

72.21

             (12)

48.66

           (987)

38.89

              —

Forfeited/expired

(1)

51.27

(130)

33.05

(33)

30.42

  —

           (105)

43.99

           (218)

36.89

Balance - July 31, 2021

16

$48.25

2,878

$36.12

1,004

$47.82

Balance - July 30, 2022

  —

$—

2,355

$40.81

874

$50.79

In 2019, we issued 1,747,441 stock warrants. The total vested and unvested warrants as of July 31, 202130, 2022 were 698,9771,048,465 and 1,048,464698,976, respectively.

6. Contingencies

We are subject to certain legal proceedings and claims arising out of the conduct of our business. In the opinion of management, the outcome of these proceedings and litigation will not have a material adverse impact on our Consolidated Financial Statements.

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7. Income Taxes

The second quarter and year to date 2021 resulted in income tax expense driven by book income. The effective income tax rate infor the second quarter of 2022 was 24.6% compared to 24.8% for the second quarter of 2021. Year to date, the rate is 22.8% for both the current and prior year periods. The year to date 2020 was driven byrates reflect the net loss due torecognition of favorable tax items in the temporary closurefirst quarter of our storesboth 2022 and the benefit of the net loss carryback to years with a federal statutory tax rate of 35%.2021.

8. Net Income (Loss) Per Share

Basic Netnet income (loss) per share is Netnet income (loss) divided by the average number of common shares outstanding during the period. Diluted Netnet income (loss) per share includes incremental shares assumed for share-based awards and stock warrants. Potentially dilutive shares include stock options, unvested restricted stock units and awards, and warrants

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outstanding during the period, using the treasury stock method. Potentially dilutive shares are excluded from the computations of diluted earnings per share (“EPS”) if their effect would be anti-dilutive.

The information required to compute basic and diluted Netnet income (loss) per share is as follows:

Three Months Ended

Six Months Ended

Three Months Ended

Six Months Ended

(Dollar and Shares in Millions, Except per Share Data)

July 31, 2021

August 1, 2020

July 31, 2021

August 1, 2020

July 30,
2022

July 31,
2021

July 30,
2022

July 31,
2021

Numerator—Net income (loss)

$382

$47

$396

$(494)

Numerator—Net income

$143

$382

$157

$396

Denominator—Weighted-average shares:

 

 

 

 

 

Basic

152

154

153

154

127

152

127

153

Dilutive impact

2

1

2

  —

1

2

2

2

Diluted

154

155

155

154

128

154

129

155

Net income (loss) per share:

 

 

 

 

Net income per share:

 

Basic

$2.51

$0.31

$2.58

$(3.21)

$1.13

$2.51

$1.24

$2.58

Diluted

$2.48

$0.30

$2.55

$(3.21)

$1.11

$2.48

$1.22

$2.55

The following potential shares of common stock were excluded from the diluted Netnet income (loss) per share calculation because their effect would have been anti-dilutive:

 

Three Months Ended

Six Months Ended

 

July 31, 2021

August 1, 2020

July 31, 2021

August 1, 2020

Anti-dilutive shares

3

5

3

7

 

Three Months Ended

Six Months Ended

(Shares in Millions)

July 30, 2022

July 31, 2021

July 30, 2022

July 31, 2021

Anti-dilutive shares

3

3

3

3

9. Subsequent Events

On August 9, 2022, the Board of Directors of the Company declared a quarterly cash dividend of $0.50 per share. The dividend will be paid on September 21, 2022 to all shareholders of record at the close of business on September 7, 2022.

On August 18, 2022, the Company entered into an accelerated share repurchase agreement ("ASR"), pursuant to its previously announced share repurchase program, with Goldman Sachs & Co. LLC to repurchase approximately $500 million of the Company’s common stock. On August 22, 2022, the Company received an initial delivery of approximately 11.8 million shares of common stock, representing approximately 80% of the total shares that are expected to be repurchased under the ASR. Final settlement of the transactions under the ASR is expected to occur in November 2022.

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

For purposes of the following discussion, unless noted, all references to "the quarter” and “the second quarter” are for the three fiscal months (13 weeks) ended July 30, 2022 or July 31, 2021, August 1, 2020, or August 3, 2019. 2021. References to “year"year to date”date" and “first half”"first half" are for the six fiscal months (26 weeks) ended July 30, 2022 or July 31, 2021 or August 1, 2020.2021. References to “the"the first quarter”quarter" are for the three fiscal months (13 weeks) ended April 30, 2022 or May 1, 2021 or May 2, 2020.2021.

This Form 10-Q contains “forward-looking statements” made 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 the information under “2021“2022 Outlook,” as well as statements about our future sales or financial performance and our plans, performance, and other objectives, expectations, or intentions, such as statements regarding our liquidity, debt service requirements, planned capital expenditures, future store initiatives, and adequacy of capital resources and reserves. Forward-looking statements are based on 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 Part I Item 1A of our 20202021 Form 10-K and in Part II Item 1A of our Form 10-Q for the quarter ended April 30, 2022, or disclosed from time to time in our filings with the SEC, 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.

Executive Summary

As of July 31, 2021, we operated 1,162 Kohl's is a leading omnichannel retailer operating 1,166 stores and a website (www.Kohls.com). During the quarter, we closed our 12 FILA outlets. as of July 30, 2022. Our Kohl's stores and website sell moderately-priced private and national brand apparel, footwear, accessories, beauty, and home products. Our Kohl's stores generally carry a consistent merchandise assortment with some differences attributable to local preferences.preferences, store size, and presence of Sephora shop-in-shops. Our website includes merchandise which is available in our stores, as well as merchandise that is available only online.

Key financial results for the quarter included:

•
Delivered record earningsNet sales decreased 8.5% and comparable sales decreased 7.7%
•
Earnings of $2.48$1.11 per diluted share
•
Strengthened financial position during the quarter, ending with $2.6 billion in cash
NetGross margin was 39.6% of net sales, increased 31.4% toa 290 basis point decrease from last year
Gross margin was 42.5% of net sales, a 942 basis point increase over the prior year period
•
SG&A increased 18.2%3.4% and leveraged 291deleveraged as a percent of total revenue by 351 basis points to last year
•
Achieved a 12.8% operatingOperating margin

COVID-19

As discussed in our 2020 Form 10-K, the COVID-19 pandemic has had significant adverse effects on our business. We are closely monitoring the effects of the ongoing COVID-19 pandemic and its continued impact on our business. We cannot estimate with certainty the length or severity of this pandemic, or the extent to which the disruption may materially impact our Consolidated Financial Statements. During the first half of 2021, we saw momentum in our business which allowed us to resume our capital allocation strategy including reinstating dividends, resuming our share repurchase program, and employing liability management strategies.

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Comparison of Financial Results to 2019

Due to the significant impact of COVID-19 on 2020 operating results, we are providing the below comparisons to the second quarter of 2019 to provide additional context.

Net sales increased 1.3% with digital sales increasing 35%
Gross margin as a percent of net sales increased 373 basis points driven by strong inventory management and our pricing and promotion optimization strategies, partially offset by higher shipping costs resulting from an increase in digital sales penetration
SG&A decreased 2.2% and leveraged 74 basis points driven by marketing and technology efficiencies as well as increased store productivity6.5%

Our Vision and Strategy

In 2020, the Company announced a new strategic framework with aThe Company’s vision is to be “the most trusted retailer of choice for the active and casual lifestyle.” Thislifestyle” and its strategy is designed to createfocused on delivering long-term shareholder value and has four keyvalue. Key strategic focus areas:areas for the Company include: driving top line growth, expandingdelivering a 7% to 8% operating margin, maintaining disciplined capital management, and sustaining an agile, accountable, and inclusive culture.

2021

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2022 Outlook

Our updated expectationsoutlook for fiscal 2021 are2022 is as follows:

Net sales

 Increase low-twenties %(5%) to (6%) vs 20202021

Operating margin

 7.4%4.2% - 7.6%4.5%

 Adjusted dilutedDiluted earnings per share (a)

 $5.80$2.80 - $6.10$3.20

Capital expenditures

 $600 - $650$825 million

 Share repurchases

 $500 - $700 million

(a)
Adjusted diluted earnings per share is a Non-GAAP financial measure. See GAAP to Non-GAAP Reconciliation for items excluded.

We continue to be thoughtfulrepurchased $158 million in shares in the first quarter of 2022 and prudent in setting our financial outlook for the balance of the year considering the uncertainty aroundentered into a $500 million ASR on August 18, 2022.

A weakening macro environment, high inflation, and dampened consumer spending given the COVID-19 delta variant situation, as well as industry-wide supply chain challengesare having broad implications across much of retail, especially in discretionary categories like apparel. Our updated full year guidance contemplates lower sales and wage headwinds.margin pressure from a more difficult economic backdrop and a more competitive landscape.

Results of Operations

Total Revenue

Three Months Ended

Six Months Ended

Three Months Ended

Six Months Ended

(Dollars in Millions)

July 31, 2021

August 1, 2020

Change

July 31, 2021

August 1, 2020

Change

July 30, 2022

July 31, 2021

Change

July 30, 2022

July 31, 2021

Change

Net sales

$4,223

$3,213

$1,010

$7,885

$5,373

$2,512

$3,863

$4,223

$(360)

$7,334

$7,885

$(551)

Other revenue

224

194

30

449

462

(13)

         224

         224

  —

         468

         449

           19

Total revenue

$4,447

$3,407

$1,040

$8,334

$5,835

$2,499

$4,087

$4,447

$(360)

$7,802

$8,334

$(532)

Net sales increased 31.4%decreased 8.5% in the second quarter of 2022 and 7.0% year to date 2022.

•
Comparable sales decreased 7.7% in the second quarter of 2022 and 6.5% year to date 2022 driven by lower store traffic and smaller basket sizes.
•
Digital sales were flat for the second quarter of 20212022 and 46.8% fordecreased 2% year to date 2021.

The increase in2022. Digital penetration was 28% of net sales was driven by higher sales in our stores and shows that our key strategic initiatives are gaining traction and resonating with our customers.
Digital sales decreased 14% for the second quarter of 20212022 and 2% for29% of net sales year to date 2021.Digital penetration was 26% of net sales for the second quarter of 2021 and 28% of net sales for year to date 2021.2022.
•
From a line of business perspective, Men's, Accessories, Women's, and FootwearMen's outperformed the Company average for the second quarter and year to date 2021.2022, while Home, Footwear, and Children's underperformed the Company.

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•
Active continues to outperform and increased more than 40% forapparel outperformed the Company in the second quarter of 20212022 with strong growth in our athleisure and more than 60% foroutdoor offerings. Total active underperformed the overall business in the second quarter of 2022 and year to date 2021. Active2022 due in part to the strong growth achieved last year as well as supply chain-related challenges in athletic footwear. Total active represented 24%23% of sales for the second quarter of 2021 and 23% of sales year to date 2021.2022.

Net sales includes revenue from the sale of merchandise, net of expected returns, and shipping revenue.

Comparable sales is a measure that highlights the performance of our stores and digital channel by measuring the change in sales for a period over the comparable, prior-year period of equivalent length. Comparable sales includes all store and digital sales, except sales from stores open less than 12 months, stores that have been closed, and stores where square footage has changed by more than 10%. We measure the change in digital sales by including all sales initiated online or through mobile applications, including omnichannel transactions which are fulfilled through our stores.

As our stores were closed for a period during the second quarter

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Table of 2020, we have not included a discussion of comparable sales as we do not believe it is a meaningful metric over this period of time.Contents

We measure digital penetration as digital sales over net sales. These amounts do not take into consideration fulfillment node, digital returns processed in stores, and coupon behaviors.

DigitalComparable sales and digital penetration calculationsmeasures vary across the retail industry. As a result, our comparable sales calculation and digital penetration calculationare non-GAAP measures that may not be consistent with the similarly titledsimilarly-titled measures reported by other companies.

The increase in Other revenue of $30 millionwas flat for the second quarter of 20212022 and increased $19 million year to date 2022. The increase year to date was driven by an increase inhigher credit revenue due to lower write-off activity. Year to date, other revenue decreased $13 million driven by lowerhigher late fees.

On March 14, 2022, we amended and restated our private label credit revenue due to lower accounts receivable balances associatedcard program agreement with a decreaseCapital One through March 31, 2030. The agreement will operate in sales in 2020 partially offset by lower write-off activity.substantially the same manner as it currently operates.

Cost of Merchandise Sold and Gross Margin

Three Months Ended

Six Months Ended

Three Months Ended

Six Months Ended

(Dollars in Millions)

July 31, 2021

August 1, 2020

Change

July 31, 2021

August 1, 2020

Change

July 30, 2022

July 31, 2021

Change

July 30, 2022

July 31, 2021

Change

Net sales

$4,223

$3,213

$1,010

 

$7,885

$5,373

$2,512

 

$3,863

$4,223

$(360)

 

$7,334

$7,885

$(551)

 

Cost of merchandise sold

2,426

2,149

277

 

4,659

3,936

723

 

      2,332

      2,426

      (94)

 

      4,472

      4,659

     (187)

 

Gross margin

$1,797

$1,064

$733

 

$3,226

$1,437

$1,789

 

$1,531

$1,797

$(266)

 

$2,862

$3,226

$(364)

 

Gross margin as a percent of net sales

42.5%

33.1%

942

bps

40.9%

26.8%

1,415

bps

39.6%

42.5%

     (290)

bps

39.0%

40.9%

     (189)

bps

Cost of merchandise sold 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 expenses for digital sales; terms cash discount; and depreciation of product development facilities and equipment. Our cost of merchandise sold may not be comparable with that of other retailers because we include distribution center and buying costs in selling, general, and administrative expenses while other retailers may include these expenses in cost of merchandise sold.

ForGross margin is calculated as net sales less cost of merchandise sold. In the second quarter of 2021,2022, gross margin was 42.5%39.6% of net sales, increasing 942decreasing 290 basis points. YTD 2021Year to date 2022 gross margin was 40.9%39.0% of net sales, increasing 1,415decreasing 189 basis points.

Gross The decrease in gross margin benefited from strong inventory management with a focus on turn, further scaling our pricingfor the second quarter was primarily driven by elevated freight costs, product cost inflation, and promotion optimization strategies, a favorable industry backdrop which provided for a greater percentage of full price selling, and from lower shipping costs resulting from decreased digital sales penetration. In executing against our strategy, we have structurally improved our margin efficiency and are confident in our ability to sustain the recent improvement, while we are also monitoring industry-wide supply chain uncertainties and cost inflation. We have

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navigated the challengesincreased promotional activity. Year to date, but acknowledge there still remains a lot of uncertainty as we look to the balance of the year.decrease was driven by increased freight costs.

Selling, General, and Administrative Expense (“SG&A”)

Three Months Ended

Six Months Ended

Three Months Ended

Six Months Ended

(Dollars in Millions)

July 31, 2021

August 1, 2020

Change

July 31, 2021

August 1, 2020

Change

July 30, 2022

July 31, 2021

Change

July 30, 2022

July 31, 2021

Change

SG&A

$1,241

$1,050

$191

 

$2,411

$2,116

$295

 

$1,283

$1,241

$42

 

$2,576

$2,411

$165

 

As a percent of total revenue

27.9%

30.8%

(291)

bps

28.9%

36.3%

(733)

bps

31.4%

27.9%

      351

bps

33.0%

28.9%

      409

bps

SG&A includes compensation and benefit costs (including stores, corporate, buying, 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 other than expenses to fulfill digital sales; marketing expenses, offset by vendor payments for reimbursement of specific, incremental, and identifiable costs; expenses related to our credit card operations; and other administrative revenues and expenses. We do not include depreciation and amortization in SG&A. The classification of these expenses varies across the retail industry.

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Many of our expenses, including store payroll and distribution costs, are variable in nature. These costs generally increase as sales increase and decrease as sales decrease. We measure both the change in these variable expenses and the expense as a percent of revenue. If the expense as a percent of revenue decreased from the prior year, the expense "leveraged". If the expense as a percent of revenue increased over the prior year, the expense "deleveraged".

The following table summarizes the increases (decreases)changes in SG&A by expense type:

Three Months Ended

Six Months Ended

Three Months Ended

Six Months Ended

(Dollars in Millions)

July 31, 2021

July 30, 2022

Store expenses

$100

$148

$44

$126

Marketing

39

34

Distribution

                          6

                         22

Corporate and other

30

86

                         (8)

                         17

Distribution

32

52

Technology

(10)

(25)

Total increase

$191

$295

$42

$165

SG&A expenses increased $191$42 million, or 18.2%3.4%, to $1.2$1.3 billion in the second quarter of 2021. 2022.As a percentage of revenue, SG&A leverageddeleveraged by 291351 basis points. Year to date 2021,2022, SG&A expenses increased $295$165 million, or 13.9%6.8%, to $2.4$2.6 billion. As a percentage of revenue, SG&A leverageddeleveraged by 733409 basis points as we continue to deliver against our efforts to drive marketing and technology efficiency and improve store productivity.

points. The increase in SG&A during the second quarter and year to date 20212022 was primarily driven by increases in store, marketing, distribution, and corporate expenses as sales recovered and expenses normalized after our store closures last year due to COVID-19. Corporate expenses also increased year to date due to the retention credit benefit we were eligible for under The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) in 2020. Partially offsetting the increase in SG&A expense was a decrease in technology expense driven by a more balanced staffing model.

Wage inflation is expected to remain a headwind as the employment market remains very tight. To strengthen our position for the upcoming holiday season, we recently announced a retention incentive for associatesstrategic investments made in our stores to support the Sephora shop-in-shops openings, store refreshes, and distribution centers. We will continue to monitor our positioningreflows. Additionally, we experienced increases in the market to ensure that we remain competitive. We will look to mitigate the higherwages and heightened transportation costs through increased store productivity and efficiency across other areas of the business.

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Other Expenses

 

Three Months Ended

Six Months Ended

(Dollars in Millions)

July 31, 2021

August 1, 2020

Change

July 31, 2021

August 1, 2020

Change

Depreciation and amortization

$210

$219

$(9)

$421

$446

$(25)

Impairments, store closing, and other costs

  —

(2)

2

  —

64

(64)

(Gain) on sale of real estate

  —

(127)

127

  —

(127)

127

Interest expense, net

62

78

(16)

129

136

(7)

Loss on extinguishment of debt

  —

  —

  —

201

  —

201

Depreciation and amortization decreases were driven by reduced capital spending in 2020 due to COVID-19.

In the second quarter of 2020, we recognized a gain of $2 million in Impairments, store closing, and other costs which was the result of a gain due to a lease amendment partially offset by an asset impairment on assets held for sale. In the first quarter of 2020, we incurred $66 million of Impairments, store closing, and other costs. We incurred $51 million in asset write-offs, $2 million in other costs related to capital reductions and strategy changes due to COVID-19, and $13 million in brand exit costs.

In the second quarter of 2020, we recognized a gain of $127 million from the sale leaseback transaction of our San Bernardino E-commerce fulfillment and distribution centers.

Net interest expense decreasedboth in the second quarter and year to date 20212022. Last, Corporate and other costs decreased in the second quarter of 2022 and increased year to date 2022. The decrease in the second quarter of 2022 was due to lower general corporate costs partially offset by $9 million of expense related to the strategic review process. The year to date 2022 increase was primarily driven by nearly $26 million of expenses related to the proxy contest and the strategic review process.

Other Expenses

 

Three Months Ended

Six Months Ended

(Dollars in Millions)

July 30, 2022

July 31, 2021

Change

July 30, 2022

July 31, 2021

Change

Depreciation and amortization

$206

$210

$(4)

$406

$421

$(15)

Interest expense, net

                  77

                  62

        15

                 145

                 129

       16

Loss on extinguishment of debt

  —

  —

  —

  —

  201

  (201)

The decrease in depreciation and amortization in the first half of 2022 was primarily driven by reduced capital spending in technology.

Net interest expense increased in the first half of 2022 due to more financing leases, partially offset by a decrease in interest expense in the first quarter of 2022 due to the benefit of debt reductions as a result of higher interest expense in 2020 due to the outstanding balance on the revolving credit facility as of the second quarter of 2020 and the $600 million notes issued in April 2020 partially offset byour liability management strategies employed induring 2021.

In the first quarter of 2021, we completed a cash tender offer and recognized a loss of $201 million from the extinguishment of debt.

Income Taxes

 

Three Months Ended

Six Months Ended

(Dollars in Millions)

July 30, 2022

July 31, 2021

Change

July 30, 2022

July 31, 2021

Change

Provision for income taxes

$46

$126

$(80)

$46

$117

$(71)

Effective tax rate

24.6%

24.8%

 

22.8%

22.8%

 

16

 

Three Months Ended

Six Months Ended

   (Dollars in Millions)

July 31, 2021

August 1, 2020

Change

July 31, 2021

August 1, 2020

Change

Provision (benefit) for income taxes

$126

$(7)

$133

$117

$(242)

$359

Effective tax rate

24.8%

(17.9%)

 

22.8%

32.9%

 

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The second quarter and year to date 2021 resulteddecrease in provision for income tax expensetaxes was driven by book income. The effectivelower taxable income tax rate in the second quarter and year to date 2020 was driven by2022. The year to date rates reflect the net loss due torecognition of favorable tax items in the temporary closurefirst quarter of our storesboth 2022 and the benefit of the net loss carryback to years with a federal statutory tax rate of 35%.

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2021.

GAAP to Non-GAAP Reconciliation

(Dollars in Millions, Except per Share Data)

Operating Income (Loss)

Income (Loss) before
Income Taxes

Net Income (Loss)

Earnings (Loss) Per Diluted
Share

Operating Income

Income before
Income Taxes

Net Income

Earnings Per Diluted
Share

Three Months Ended July 30, 2022

 

GAAP

$266

$189

$143

$1.11

Loss on extinguishment of debt

  —

Income tax impact of items noted above

  —

Adjusted (non-GAAP) (1)

$266

$189

$143

$1.11

Three Months Ended July 31, 2021

 

 

GAAP

$570

$508

$382

$2.48

$570

$508

$382

$2.48

Loss on extinguishment of debt

  —

  —

  —

Impairments, store closing, and other costs

  —

                  —

(Gain) on sale of real estate

  —

Income tax impact of items noted above

  —

  —

Adjusted (non-GAAP)

$570

$508

$382

$2.48

Three Months Ended August 1, 2020

 

GAAP (1)

$118

$40

$47

$0.30

Adjusted (non-GAAP) (1)

$570

$508

$382

$2.48

Six Months Ended July 30, 2022

 

GAAP

$348

$203

$157

$1.22

Loss on extinguishment of debt

  —

  —

Impairments, store closing, and other costs

(2)

(0.01)

(Gain) on sale of real estate

(127)

(0.82)

Income tax impact of items noted above

  —

43

0.28

  —

Adjusted (non-GAAP) (2)

$(11)

$(89)

$(39)

$(0.25)

Adjusted (non-GAAP) (1)

$348

$203

$157

$1.22

Six Months Ended July 31, 2021

 

 

GAAP

$843

$513

$396

$2.55

$843

$513

$396

$2.55

Loss on extinguishment of debt

  —

201

1.29

  —

  201

           1.29

Impairments, store closing, and other costs

  —

                  —

(Gain) on sale of real estate

  —

                  —

Income tax impact of items noted above

  —

(50)

(0.32)

  —

  (50)

  (0.32)

Adjusted (non-GAAP)

$843

$714

$547

$3.52

$843

$714

$547

$3.52

Six Months Ended August 1, 2020

 

GAAP

$(600)

$(736)

$(494)

$(3.21)

Loss on extinguishment of debt

  —

                  —

Impairments, store closing, and other costs

64

0.41

(Gain) on sale of real estate

(127)

(0.82)

Income tax impact of items noted above

  —

23

0.15

Adjusted (non-GAAP)

$(663)

$(799)

$(534)

$(3.47)

(1)
Weighted average diluted shares outstanding for purpose of calculating diluted earnings per shareAmounts shown for the three months ended August 1, 2020 was 155 million, which includes the dilutive effect of share-based awards as determined under the treasury stock method.
(2)
Weighted average diluted shares outstanding for purposes of calculating diluted adjusted (loss) per shareJuly 30, 2022 and July 31, 2021 and for the threesix months ended August 1, 2020 was 154 millionJuly 30, 2022 are GAAP as the effect of including dilutive shares would be antidilutive.there are no adjustments to Non-GAAP. These amounts are shown for comparability purposes.

We believe the adjusted results in the table above are useful because they provide enhanced visibility into our results for the periods excluding the impact of certain items such as those included in the table above. However, these non-GAAP financial measures are not intended to replace the comparable GAAP measures.

Seasonality and Inflation

Our business, like that of other retailers, is subject to seasonal influences. Sales and income are typically higher during the back-to-school and holiday seasons. 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.Due to the impact of COVID-19, typical sales patterns may not occur this year.

In addition to COVID-19, we expect that our operations will continue to be influenced by general economic conditions, including food, fuel, and energy prices, higher unemployment, wage and transportation inflation, product cost inflation, and costs to source our merchandise, including tariffs. There can be no assurances that such factors will not continue to impact our business in the future.

Liquidity and Capital Resources

Capital Allocation

Our capital allocation strategy is to invest to maximize our overall long-term return, maintain a strong balance sheet, and maintain our investment grade rating. We follow a disciplined approach to capital allocation based on the following priorities: first we invest in our business to drive long-term profitable growth; second we pay a quarterly dividend; and

18

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third we return excess cash to shareholders through our share repurchase program. In addition, when appropriate, we will complete liability management transactions.

LiquidityOur period-end cash and Capital Resourcescash equivalents balance decreased to $222 million from $2.6 billion in the second quarter of 2021.Our cash and cash equivalents balance includes short-term investments of $11 million and $2.3 billion as of July 30, 2022, and July 31, 2021, respectively. Our investment policy is designed to preserve principal and liquidity of our short-term investments. This policy allows investments in large money market funds or in highly rated direct short-term instruments. We also place dollar limits on our investments in individual funds or instruments.

We expect our balance sheet and cash flow metrics to be more challenging in 2022 and most notably at the end of the third quarter of fiscal 2022 as we build inventory in advance of the holiday season.

The following table presents our primary uses and sources of cash:

 Cash Uses

Cash Sources

• Operational needs, including salaries, rent, taxes, and other operating costs

• Inventory

• Capital expenditures

• InventoryDividend payments

• Share repurchases

• Dividend payments

• Debt reduction

• Cash flow from operations

• Short-term trade credit, in the form of extended payment terms

• Line of credit under our revolving credit facility

• Issuance of debt

 

Six Months Ended

(Dollars in Millions)

July 30, 2022

July 31, 2021

Change

Net cash (used in) provided by:

 

 

 

Operating activities

$(546)

$1,692

$(2,238)

Investing activities

               (544)

               (187)

      (357)

Financing activities

               (275)

            (1,207)

       932

Our working capital and inventory levels typically build throughout the fall, peaking during the November and December holiday selling season.

 

Six Months Ended

   (Dollars in Millions)

July 31, 2021

August 1, 2020

Change

Net cash provided by (used in):

 

 

 

Operating activities

$1,692

$304

$1,388

Investing activities

(187)

(3)

(184)

Financing activities

(1,207)

1,404

(2,611)

Operating Activities

Our operating cash outflows generally consist of payments to our employees for wages, salaries and employee benefits, payments to our merchandise vendors for inventory (net of vendor allowances), payments to our shipping carriers, and payments to our landlords for rent. Operating cash outflows also include payments for income taxes and interest on our debt borrowings.

Operating activities generated $1.7 billionused $546 million of cash in the first half of 20212022 compared to $304$1.7 billion of cash generated in the first half of 2021. The decrease in operating cash flow was primarily driven by an increase in inventory. The inventory increase was due to increased beauty inventory to support the Sephora shop-in-shop rollouts, elevated in-transit levels due to continued supply chain challenges, and a rebuild of inventory in key areas such as active and women's.

Investing Activities

Our investing cash outflows include payments for capital expenditures, including investments in new and existing stores, improvements to supply chain, and technology costs. Our investing cash inflows are generally from proceeds from sales of property and equipment.

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Investing activities used $544 million in the first half of 2020. The increase was primarily due to an increase in net income resulting from increased sales due to the impact of COVID-19 last year2022 and a tax refund received in 2021 related to the net loss we incurred in 2020 and the carryback provision under the CARES Act.

Investing Activities

Investing activities used $187 million in the first half of 20212021. The increase was primarily driven by in-store investments related to Sephora shop-in-shop build-outs, store refreshes, and $3other customer experience and sales driving enhancements.

During the first half of 2022, we opened 340 Sephora-branded retail shop-in-shops and now have a total of 540 Sephora shop-in-shops open. We are planning on opening another 60 shop-in-shops in 2022 and at least 250 shop-in-shops in 2023. We are also working with Sephora to have a Sephora presence in the remaining 300 stores.

Financing Activities

Our financing strategy is to ensure liquidity and access to capital markets. We also strive to maintain a balanced portfolio of debt maturities, while minimizing our borrowing costs. Our ability to access the public debt market has provided us with adequate sources of liquidity. Our continued access to these markets depends on multiple factors, including the condition of debt capital markets, our operating performance, and maintaining strong credit ratings.

If our credit ratings were lowered, our ability to access the public debt markets, our cost of funds, and other terms for new debt issuances could be adversely impacted. Each of the credit rating agencies reviews its rating periodically and there is no guarantee our current credit ratings will remain the same.

The majority of our financing activities include repurchases of common stock, proceeds from and/or repayments of long-term debt, and dividend payments.

Financing activities used $275 million in the first half of 2020. The increase was due to proceeds from the sale of real estate in the second quarter of 2020.

Financing Activities

Financing activities used2022 and $1.2 billion in the first half of 2021 and generated $1.4 billion in2021.

In the first halfsecond quarter of 2020.2022 we drew on our credit facility. As of July 30, 2022, $79 million was outstanding.

In March 2021, we issued $500 million in aggregate principal amount of 3.375% notes with semi-annual interest payments beginning in November 2021. The notes include coupon rate step ups if our long-term debt is downgraded to below a BBB- credit rating by S&P Global Ratings or Baa3 by Moody’s Investors Service, Inc. The notes mature in May 2031.

In April 2021, we completed a cash tender offer for $1.0 billion of senior unsecured debt. We recognized a $201 million loss on extinguishment of debt in the first quarter of 2021, which includes the $192 million tender premium paid to tendering note holders in accordance with the terms of the tender offer, a $6 million non-cash write-off of deferred financing costs and original issue discounts associated with the extinguished debt, and $3 million in other fees.

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In March 2020, we fully drew down our $1.0 billion senior unsecured revolver. In April 2020, we replaced and upsized the unsecured credit facility with a $1.5 billion senior secured, asset based revolving credit facility maturing in July 2024. At August 1, 2020, $1.0 billion was outstanding on the credit facility bearing an effective interest rate of 3.41%.

In April 2020, we issued $600 million in aggregate principal amount of 9.50% notes with semi-annual interest payments beginning in November 2020. The notes mature in May 2025. We used part of the net proceeds from this offering to repay $500 million of the borrowings under our senior secured, asset based revolving credit facility with the remainder for general corporate purposes.

We paid cash for treasury stock purchases of $158 million in the first half of 2022 and $301 million in the first half of 2021 and $8 million2021. The 2022 purchases were made pursuant to a Rule 10b5-1 plan adopted in the first half of 2020. During the first quarter of 2021, we reinstated our share repurchase program which had been suspended in the first quarter of 2020 in response to COVID-19.November 2021. Share repurchases are discretionary in nature. The timing and amount of repurchases are based upon available cash balances, our stock price, and other factors.

Cash dividend payments were $127 million ($1.00 per share) in the first half of 2022 and $77 million ($0.50 per share) in the first half of 2021 and $108 million ($0.704 per share) in the first half of 2020. During the first quarter of 2021, we reinstated our dividend program which had been suspended beginning in the second quarter of 2020 in response to COVID-19. On August 10, 2021, our Board of Directors declared a quarterly cash dividend on our common stock of $0.25 per share. The dividend is payable September 22, 2021 to shareholders of record at the close of business on September 8, 2021.

As of July 31, 2021,30, 2022, our credit ratings and outlook were as follows:

Moody’s

Standard &
Poor’s

Fitch

Long-term debt

Baa2

BBB-

BBB-

Outlook

NegativeStable

StableNegative

Stable

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Key Financial Ratios

Key financial ratios that provide certain measures of our liquidity are as follows:

(Dollars in Millions)

July 31, 2021

August 1, 2020

July 30, 2022

July 31, 2021

Working capital

$2,349

$3,122

$1,260

$2,349

Current ratio

1.71

2.22

               1.37

               1.71

Our working capital and inventory levels typically build throughout the fall, peaking during the November and December holiday selling season.

The decrease in our working capital and current ratio areis primarily due to lower cash balances as a result of higher capital expenditures and an increase in accounts payable driven by higher inventory receipts as well as an increase in accrued liabilities.inventory.

Debt Covenant Compliance

As of July 31, 2021,30, 2022, we were in compliance with all covenants in our debt instruments and expect to remain in compliance during the remainder of fiscal 2021.2022.

Contractual Obligations

During the first half of 2021, we issued $500 million in aggregate principal amount of 3.375% notes due in 2031. We also completed a cash tender offer for $1.0 billion of our senior unsecured debt. See "Liquidity and Capital Resources" for additional details about these financing activities. See Note 3 of the Consolidated Financial Statements for additional details about outstanding debt. There have been no other significant changes in the contractual obligations disclosed in our 20202021 Form 10-K.

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Table10-K other than leases, which have been disclosed in Note 4 of Contents

the Consolidated Financial Statements, and borrowings in our revolving credit facility, which have been disclosed in Note 3 of the Consolidated Financial Statements and under "Liquidity and Capital Resources - Financing Activities".

Off-Balance Sheet Arrangements

We have not provided any financial guarantees arising from arrangements with unconsolidated entities or persons as of July 31, 2021.30, 2022.

We have not created, and are not a 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 financial condition, liquidity, results of operations, or capital resources.

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with U.S. GAAP 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 20202021 Form 10-K.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Our operating results are subject to interest rate risk as the $500 million of notes issued in March 2021 include coupon rate step ups if our long-term debt is downgraded to below a BBB- credit rating by S&P Global Ratings or Baa3 by Moody’s Investors Service, Inc. There have been no other significant changes in the Quantitative and Qualitative Disclosures About Market Riskmarket risks described in our 20202021 Form 10-K.

Item 4. Controls and Procedures

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

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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 Rule 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.

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.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended July 31, 202130, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1A. Risk Factors

There have been no significant changes in the Risk Factors described in our 20202021 Form 10-K.10-K, other than as set out in our Quarterly Report on Form 10-Q for the quarter ended April 30, 2022, in Item 1A of Part II.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

In April 2021,February 2022, our Board of Directors increased the remaining share repurchase authorization under our existing share repurchase program to $2.0$3.0 billion. Purchases under the repurchase program may be made in the open market, through block trades, and other negotiated transactions. We expect to execute the share repurchase program primarily in open market transactions, subject to market conditions. There is no fixed termination date for the repurchase program, and the program may be suspended, discontinued, or accelerated at any time.

The following table contains information for shares of common stock repurchased and shares acquired from employees in lieu of amounts required to satisfy minimum tax withholding requirements upon the vesting of the employees’ stock-based compensation during the three fiscal months ended July 31, 2021:30, 2022:

(Dollars in Millions, Except per Share Data)

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

May 2 - May 29, 2021

521,225

$57.84

503,364

$1,955

May 30 - July 3, 2021

2,697,721

54.26

2,676,770

1,810

July 4 - Jul 31, 2021

1,583,374

51.04

1,573,580

1,730

Total

4,802,320

$53.59

4,753,714

$1,730

(Dollars in Millions, Except per Share Data)

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

May 1 - May 28, 2022

        15,312

$48.44

  —

$2,976

May 29 - July 2, 2022

        27,856

       40.48

  —

$2,976

July 3 - July 30, 2022

          6,219

       26.98

  —

$2,976

Total

        49,387

$41.25

  —

 

Item 5. Other Information

On August 10, 2021,9, 2022, the Board of Directors (the “Board”) of the Company approved and adopted the Amended and Restated Bylaws (the “Bylaws”), which became effective the same day, in order to, among other things, revise(i) address recently adopted amendments to Rule 14a-19 under the periodSecurities Exchange Act of 1934, as amended, by clarifying that no person may solicit proxies in whichsupport of a director nominee other than the Board’s nominees unless such person has complied with Rule 14a-19, and that any person soliciting proxies in support of a director nominee other than the Board’s nominees must comply with the requirements to provide notices required under Rule 14a-19 in a timely manner and deliver reasonable evidence that the Rule 14a-19 requirements have been met; (ii) require any notice of nominations for elections of directors in connection with annual meetings maydirector nomination to be given, to revise the information that must be provided in connection with such notices, to specify when that information must be updated, and to make certain conforming changes to the “proxy access” provisionsaccompanied by a completed written questionnaire required of the Bylaw. Company’s directors and officers, and that the questionnaire and written representation and agreement of a nominee be in the form provided by the Company; and (iii) require that a shareholder directly or indirectly soliciting proxies from other shareholders use a proxy card color other than white.

The preceding summary of the amendments to the Bylaws is qualified in its entirety by reference to, and should be read in connection with, the complete copy of the Amended and Restated Bylaws filed herewith as Exhibits 3.1 (clean) and 3.2 (marked).


 

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Item 6. Exhibits

Exhibit

 

Description

3.1

Amended and Restated Bylaws (clean version), incorporated by reference to Exhibit 3.1 of the Company’sCompany's Current Report on Form 8-K dated August 10, 2021.2022.

3.2

Amended and Restated Bylaws (marked version), incorporated by reference to Exhibit 3.2 of the Company’sCompany's Current Report on Form 8-K dated August 10, 2021.2022.

10.1

Amended and Restated Executive Compensation Agreement between Kohl’s, Inc. and Siobhán McFeeney dated as of July 16, 2022.*

10.2

Amended and Restated Raymond Executive Compensation Agreement between Kohl’s, Inc. and Christie Raymond dated as of August 16, 2022.*

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

 

Inline XBRL Instance Document

101.SCH

 

Inline XBRL Taxonomy Extension Schema

101.CAL

 

Inline XBRL Taxonomy Extension Calculation Linkbase

101.DEF

 

Inline XBRL Taxonomy Extension Definition Linkbase

101.LAB

 

Inline XBRL Taxonomy Extension Label Linkbase

101.PRE

 

Inline XBRL Taxonomy Extension Presentation Linkbase

104

 

Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibits 101)

*A management contract or compensatory plan or arrangement.

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Table of Contents

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, thereunto duly authorized.

Kohl’s Corporation

(Registrant)

Date: September 2, 20211, 2022

/s/ Jill Timm

Jill Timm

On behalf of the Registrant and as Chief Financial Officer

(Principal Financial Officer)

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