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What changed in KOHLS Corp's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of KOHLS Corp's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+187 added−208 removedSource: 10-K (2023-03-16) vs 10-K (2022-03-17)

Top changes in KOHLS Corp's 2023 10-K

187 paragraphs added · 208 removed · 142 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeTo keep a healthy workforce, we maintain an advocacy program that provides associates with 24/7 access to medical professionals following a work accident. We have enhanced the way our stores are built and operated in an effort to create a safer shopping experience for our associates and customers. We continue to pursue innovative ways to educate our teams on safety.
Biggest changeW e have a team dedicated to defining plans and preparing for business crisis events, including natural disasters and other unplanned disruptions like those brought on by the COVID-19 pandemic. To keep a healthy workforce, we maintain an advocacy program that provides associates with 24/7 access to medical professionals following a work accident.
Compared to private brands, national brands generally have higher selling prices, but lower gross margins. The following tables summarize our net sales penetration by line of business and brand type over the last three years: Our fiscal year ends on the Saturday closest to January 31 st each year.
Compared to national brands, private brands generally have lower selling prices, but higher gross margins. The following tables summarize our net sales penetration by line of business and brand type over the last three years: Our fiscal year ends on the Saturday closest to January 31 st each year.
This subsidiary has over 200 additional registered trademarks, most of which are used in connection with our private brand products. We consider the KOHL'S® mark, all other registered trademarks, and the accompanying goodwill to be valuable to our business. Available Information Our corporate website is https://corporate.kohls.com.
This subsidiary has over 200 additional registered trademarks, most of which are used in connection with our private brand products. We consider the KOHL'S® mark, all other trademarks, and the accompanying goodwill to be valuable to our business. Available Information Our corporate website is https://corporate.kohls.com.
Digital sales may be picked up in our stores or are shipped from a Kohl’s e-fulfillment center, retail distribution center or store, third-party fulfillment center, or directly by a third-party vendor. See Item 2, “Properties,” for additional information about our distribution and e-fulfillment centers. Human Capital At Kohl’s, our purpose is to inspire and empower families to lead fulfilled lives.
Digital sales may be picked up in our stores or are shipped to the customer from a Kohl’s e-fulfillment center, retail distribution center or store, or directly by a third-party vendor. See Item 2, “Properties,” for additional information about our distribution and e-fulfillment centers. Human Capital At Kohl’s, our purpose is to inspire and empower families to lead fulfilled lives.
The following have also been posted on our website, under the caption “Investors” and sub-captions "Corporate Governance" or “ESG”: • Committee charters of our Board of Directors’ Audit Committee, Compensation Committee, Finance Committee, and Nominating and ESG Committee • Corporate Governance Guidelines 6 Table of Contents • Code of Ethics • Environmental, Social, and Governance Report (under “ESG” sub-caption) The information contained on our website is not part of this Annual Report on Form 10-K.
The following have also been posted on our website, under the caption “Investors” and sub-captions "Corporate Governance" or “ESG”: • Committee charters of our Board of Directors’ Audit Committee, Compensation Committee, Finance Committee, and Nominating and ESG Committee • Corporate Governance Guidelines • Code of Ethics • Environmental, Social, and Governance Report (under “ESG” sub-caption) The information contained on our website is not part of this Annual Report on Form 10-K.
We are committed to creating an environment where diversity is valued at all levels, everyone feels a sense of equity and where inclusion is evident across our business. We strive to be purposeful in attracting, growing, and engaging 4 Table of Contents more diverse talent while giving associates equitable opportunities for career growth.
We are committed to creating an environment where diversity is valued at all levels, everyone feels a sense of equity, and where inclusion is evident across our business. We strive to be purposeful in attracting, growing, and engaging more diverse talent while giving associates equitable opportunities for career growth.
Paper copies of any of the materials listed above will be provided without charge to any shareholder submitting a written request to our Investor Relations Department at N56 W17000 Ridgewood Drive, Menomonee Falls, Wisconsin 53051 or via e-mail to Investor.Relations@Kohls.com.
Paper copies of any of the materials listed above will be provided without charge to any shareholder submitting a written request to our Investor Relations Department at N56 W17000 Ridgewood Drive, Menomonee Falls, Wisconsin 53051 or via e-mail to Investor.Relations@Kohls.com. 6 Table of Contents
Our private portfolio includes well-known established brands such as Apt. 9, Croft & Barrow, Jumping Beans, SO, and Sonoma Goods for Life, and exclusive brands that are developed and marketed through agreements with nationally-recognized brands such as Food Network, LC Lauren Conrad, Nine West, and Simply Vera Vera Wang.
Our private portfolio includes well-known established brands such as Croft & Barrow, Jumping Beans, SO, Sonoma Goods for Life, and Tek Gear, and exclusive brands that are developed and marketed through agreements with nationally-recognized brands such as Food Network, LC Lauren Conrad, Nine West, and Simply Vera Vera Wang.
The following fiscal periods are presented in this report: Fiscal Year Ended Number of Weeks 2021 January 29, 2022 52 2020 January 30, 2021 52 2019 February 1, 2020 52 For discussion of our financial results, see Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations." 3 Table of Contents Distribution We receive substantially all of our merchandise at our nine retail distribution centers and six e-fulfillment centers.
The following fiscal periods are presented in this report: Fiscal Year Ended Number of Weeks 2022 January 28, 2023 52 2021 January 29, 2022 52 2020 January 30, 2021 52 For discussion of our financial results, see Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations." 3 Table of Contents Distribution We receive substantially all of our merchandise at our nine retail distribution centers and six e-fulfillment centers.
This strategy accelerates how we are embedding D&I throughout our business by being intentional about our programs and practices, and holding ourselves accountable with measurable goals and results.
This strategy accelerates how we are embedding DEI throughout our business by being intentional about our programs and practices and holding ourselves accountable with measurable goals and results.
Item 1. B usiness Kohl’s Corporation (the “Company," “Kohl’s,” "we," "our," or "us") was organized in 1988 and is a Wisconsin corporation. As of January 29, 2022, we operated 1,165 Kohl's stores and a website (www.Kohls.com). Our Kohl's stores and website sell moderately-priced private and national brand apparel, footwear, accessories, beauty, and home products.
Item 1. B usiness Kohl’s Corporation (the “Company," “Kohl’s,” "we," "our," or "us") was organized in 1988 and is a Wisconsin corporation. As of January 28, 2023, we operated 1,170 Kohl's stores and a website (www.Kohls.com). Our Kohl's stores and website sell moderately-priced private and national brand apparel, footwear, accessories, beauty, and home products.
In the space of continuous development and engagement, we have eight Business Resource Groups ("BRGs") with nearly 19,000 members focused on driving the business by recognizing and championing D&I in its multiple forms. BRG’s continue to be leveraged and seen as the “culture keepers” to support honest and reflective dialogue and accelerate the company forward in inclusion and belonging.
In the space of continuous development and engagement, we have eight Business Resource Groups ("BRGs") with approximately 20,000 members focused on driving the business by recognizing and championing DEI in its multiple forms. BRG’s continue to be leveraged and seen as the “culture keepers” to support honest and reflective dialogue and accelerate the company forward in inclusion and belonging.
We are committed to creating a culture where everyone belongs, where diversity and inclusion drive innovation and business results, while enabling associates and customers to be their authentic selves every single day. Employee Count During 2021, we employed an average of approximately 99,000 associates, which included approximately 35,000 full-time and 64,000 part-time associates.
We are committed to creating a culture where everyone belongs, where diversity and inclusion drive innovation and business results, while enabling associates and customers to be their authentic selves every single day. Employee Count During 2022, we employed an average of approximately 97,000 associates, which included approximately 36,000 full-time and 61,000 part-time associates.
We administer our recruiting efforts with a focus on education, training, and sourcing strategies for increasing our diverse talent pipeline. Our diversity and inclusion strategy is embedded into our onboarding for all associates. We endeavor to drive economic prosperity through conversations, programs, and partnerships that improve quality of life. Diversity and Inclusion efforts need to start at the top.
We administer our recruiting 4 Table of Contents efforts with a focus on education, training, and sourcing strategies for increasing our diverse talent pipeline. Our diversity and inclusion strategy is embedded into our onboarding for all associates. We endeavor to drive economic prosperity through conversations, programs, and partnerships that improve quality of life.
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. Trademarks and Service Marks KOHL'S® is a registered trademark owned by one of our wholly-owned subsidiaries.
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. Trademarks and Service Marks KOHL'S® is a registered trademark owned by one of our wholly-owned subsidiaries.
Associates at our stores, distribution and e-fulfillment centers receive specialized training to enhance our safety culture and reduce associate accidents. Diversity and Inclusion At Kohl’s, we are committed to our Diversity & Inclusion ("D&I") strategy focused on Our People, Our Customers and Our Community, and our mission to empower more families through equity and D&I.
We continue to pursue innovative ways to educate our teams on safety. Associates at our stores, distribution, and e-fulfillment centers receive specialized training to enhance our safety culture and reduce associate accidents. Diversity, Equity, and Inclusion At Kohl’s, we are committed to our Diversity, Equity, and Inclusion ("DEI") strategy focused on Our People, Our Customers, and Our Community.
Diversity is embedded within our organizational planning for the future, with diversity being an area of consideration during succession planning. We are working to develop inclusive leaders through programs aimed at building awareness and encouraging advocacy.
We are focused on growing diverse leaders by engaging top and emerging talent in internal and external professional development offerings. Diversity is embedded within our organizational planning for the future, with diversity being an area of consideration during succession planning. We are working to develop inclusive leaders through programs aimed at building awareness and encouraging advocacy.
Training and Development Behind our success are great teams of talented individuals who embody our values. We actively attract, engage, and hire talent who will drive our purpose. Our talent management team brings together performance management, talent assessment, succession planning, and career planning.
We empower our associates’ work-life balance by giving them access to a full range of professional resources. Training and Development Behind our success are great teams of talented individuals who embody our values. We actively attract, engage, and hire talent who drive our purpose. Our talent management team brings together performance management, talent assessment, succession planning, and career planning.
Our Terms of Engagement are part of our purchase order terms and conditions and include provisions regarding laws and regulations, employment practices, ethical standards, environmental requirements, communication, monitoring and compliance, record keeping, subcontracting, and corrective action. We expect that all suppliers will comply with our purchase terms and quickly remediate any deficiencies, if noted, to maintain our business relationship.
All suppliers must meet certain requirements to do business with us. Our Terms of Engagement are part of our purchase order terms and conditions and include provisions regarding laws and regulations, employment practices, ethical standards, environmental requirements, communication, monitoring and compliance, record keeping, subcontracting, and corrective action.
Management considers style, quality, price, and convenience to be the most significant competitive factors in the industry. Merchandise mix, brands, service, loyalty programs, credit availability, and customer experience are also key competitive factors. Our primary competitors are traditional department stores, mass merchandisers, off-price retailers, specialty stores, internet businesses, and other forms of retail commerce.
Merchandise mix, brands, service, loyalty programs, credit availability, 5 Table of Contents and customer experience are also key competitive factors. Our primary competitors are traditional department stores, mass merchandisers, off-price retailers, specialty stores, internet businesses, and other forms of retail commerce. Our specific competitors vary from market to market. Merchandise Vendors We purchase merchandise from numerous domestic and foreign suppliers.
We work to provide learning opportunities for our leaders and associates to build a more diverse and inclusive workforce and engage associates on how that creates a competitive advantage. In 2021, we rolled out Inclusive Leadership training to the full organization that included a range of experiential and online learner-led education.
We work to provide learning opportunities for our leaders and associates to build a more diverse and inclusive workforce and engage associates on how that creates a competitive advantage.
Health, Safety, and Wellness We lead initiatives that ensure the way we communicate, work, and develop our product enables our customers and associates to shop, work, and engage in a safe environment. We have a dedicated team responsible to prepare our business for crisis events, including natural disasters and other unplanned disruptions like those brought on by the COVID-19 pandemic.
Health, Safety, and Wellness We lead initiatives that ensure the way we communicate, work, and develop our product enables our customers and associates to shop, work, and engage in a safe environment.
We make efforts to stay ahead of the competition by leaning into new technologies and encouraging our associates to keep their skills fresh through our learning management system, which includes more than 1,000 online and in-person courses.
We continue to leverage new technologies and encourage our associates to keep their skills fresh through our learning management system, which includes more than 1,000 online and in-person courses. We are committed to the highest standards of integrity and maintain a Code of Ethics to guide ethical decision-making for associates.
A third-party purchasing agent sources approximately 20% of the merchandise we sell. No vendor individually accounted for more than 10% of our net purchases in 2021. We have no significant long-term purchase commitments with any of our suppliers and believe that we are not dependent on any one supplier or one geographical location.
We expect that all suppliers will comply with our purchase terms and quickly remediate any deficiencies, if noted, to maintain our business relationship. A third-party purchasing agent sources approximately 20% of the merchandise we sell. No vendor individually accounted for more than 10% of our net purchases in 2022.
We believe we have good working relationships with our suppliers. Seasonality 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.
We have no significant long-term purchase commitments with any of our suppliers and believe that we are not dependent on any one supplier or one geographical location. We believe we have good working relationships with our suppliers. Seasonality Our business, like that of other retailers, is subject to seasonal influences.
We are committed to the highest standards of integrity and maintain a Code of Ethics to guide 5 Table of Contents ethical decision-making for associates. We require associates to take annual ethics training, which is refreshed each year to cover relevant topics. Competition The retail industry is highly competitive.
We require associates to take annual ethics training, which is refreshed each year to cover relevant topics. Competition The retail industry is highly competitive. Management considers style, quality, price, and convenience to be the most significant competitive factors in the industry.
We provide competitive compensation and benefits programs for our employees and are committed to providing fair and equitable compensation to our employees. All eligible associates receive a 100% match (up to 5% of pay) in Kohl’s 401(k) Savings Plan after one year of employment.
All eligible associates receive a 100% match (up to 5% of pay) in Kohl’s 401(k) Savings Plan after one year of employment. Full-time associates are offered medical, dental, vision, prescription drug, disability and life insurance coverage, paid time off, and a merchandise discount. Part-time associates are offered dental, vision, supplementary life insurance, and a merchandise discount.
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In 2019, we joined the 1% club — the handful of Fortune 500 firms where both the Chief Executive Officer and Chief Financial Officer are women. We are focused on growing diverse leaders by engaging top and emerging talent in internal and external professional development offerings.
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At Kohl's, we believe our leaders are accountable for strengthening, modeling, and supporting our DEI efforts by ensuring that they are building a culture and environment where our associates feel seen, and their unique needs, experiences, abilities, and perspectives are valued and heard.
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As part of our commitment to overcoming racial injustice and fostering a diverse and inclusive workplace, the learning experience was designed to help associates understand and manage blind spots and build stronger connections with colleagues, customers, partners, and communities.
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Each leader is responsible for creating a caring culture and experience for our team, one that embraces and strives to understand our differences, and provides an inclusive environment for all. Compensation and Benefits We are committed to providing competitive and fair compensation and benefits programs to our associates.
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Kohl’s defines inclusive leadership as fostering a culture where everyone feels welcome, valued, and heard, and respecting and considering the unique needs, experiences, and perspectives of our associates to grow our business together. Compensation and Benefits As the makeup and needs of the modern family evolve, our products, services, and programs must also transform.
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Full-time associates are offered medical, dental, vision, prescription drug, disability and life insurance coverage, paid time off, and a merchandise discount. Part-time associates are offered dental, vision, supplementary life insurance, and a merchandise discount. We empower our associates’ work-life balance by giving them access to a full range of professional resources.
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Our specific competitors vary from market to market. Merchandise Vendors We purchase merchandise from numerous domestic and foreign suppliers. All suppliers must meet certain requirements to do business with us.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeChanges in the credit and capital markets, including market disruptions, limited liquidity, and interest rate fluctuations may increase the cost of financing or restrict our access to these potential sources of future liquidity. Our continued access to these liquidity sources on favorable terms depends on multiple factors, including our operating performance and maintaining strong debt ratings.
Biggest changeIn January 2023, we upsized our unsecured credit facility with a $1.5 billion senior secured, asset based revolving credit facility. Changes in the credit and capital markets, including market disruptions, limited liquidity, and interest rate fluctuations may increase the cost of financing 12 Table of Contents or restrict our access to these potential sources of future liquidity.
Political or financial instability, trade restrictions, tariffs, currency exchange rates, transport capacity and costs, pandemic outbreaks, work stoppages, port strikes, port congestion and delays, and other factors relating to foreign trade are beyond our control and have or could continue to adversely impact our performance and cause us to pay more to obtain inventory or result in having wrong inventory at the wrong time.
Political or financial instability, trade restrictions, tariffs, currency exchange rates, transport capacity and costs, pandemic outbreaks, work stoppages, port strikes, port congestion and delays, and other factors relating to foreign trade are beyond our control and have or could continue to adversely impact our performance and cause us to pay more to obtain inventory or result in having the wrong inventory at the wrong time.
The proprietary Kohl's credit card accounts are owned by an unrelated third-party, but we share in the net risk-adjusted revenue of the portfolio, which is defined as the sum of finance charges, late fees, and other revenue less write-offs of uncollectible accounts.
The private Kohl's credit card accounts are owned by an unrelated third-party, but we share in the net risk-adjusted revenue of the portfolio, which is defined as the sum of finance charges, late fees, and other revenue less write-offs of uncollectible accounts.
If our marketing and loyalty programs are not successful or efficient, our sales and operating results could be adversely affected. The reputation and brand image of Kohl’s and the brands and products we sell could be damaged. We believe the Kohl's brand name and many of our proprietary brand names are powerful sales and marketing tools.
If our marketing and loyalty programs are not successful or efficient, our sales and operating results could be adversely affected. The reputation and brand image of Kohl’s and the brands and products we sell could be damaged. We believe the Kohl's brand name and many of our private brand names are powerful sales and marketing tools.
Many of our strategic initiatives require that we hire and/or develop associates with appropriate 12 Table of Contents experience. Our staffing needs are especially high during the holiday season. Competition for these associates is intense. We cannot be sure that we will be able to attract and retain a sufficient number of qualified personnel in future periods.
Many of our strategic initiatives require that we hire and/or develop associates with appropriate experience. Our staffing needs are especially high during the holiday season. Competition for these associates is intense. We cannot be sure that we will be able to attract and retain a sufficient number of qualified personnel in future periods.
It is possible that our facilities and systems and those of our third-party vendors are vulnerable to cybersecurity threats, security breaches, system failures, acts of vandalism, fraud, misappropriation, malware, ransomware, and other malicious or harmful code, misplaced or lost data, programming and/or human errors, insider threats, or other similar events.
It is possible that our 13 Table of Contents facilities and systems and those of our third-party vendors are vulnerable to cybersecurity threats, security breaches, system failures, acts of vandalism, fraud, misappropriation, malware, ransomware, and other malicious or harmful code, misplaced or lost data, programming and/or human errors, insider threats, or other similar events.
To the extent the pandemic significantly impacts spending or payment patterns of our private label credit card holders, we may receive lower fees from our private label credit card program. Risks Relating to Operations If we are unable to attract and retain associates in the future, we may experience operational challenges.
To the extent any such outbreak or pandemic significantly impacts spending or payment patterns of our private label credit card holders, we may receive lower fees from our private label credit card program. Risks Relating to Operations If we are unable to attract and retain associates in the future, we may experience operational challenges.
Customer expectations about the methods by which they purchase and receive products or services are evolving. Customers are increasingly using technology and mobile devices to rapidly compare products and prices, and to 11 Table of Contents purchase products. Once products are purchased, customers are seeking alternate options for delivery of those products.
Customer expectations about the methods by which they purchase and receive products or services are evolving. Customers are increasingly using technology and mobile devices to rapidly compare products and prices, and to purchase products. Once products are purchased, customers are seeking alternate options for delivery of those products.
Failure to accurately predict constantly changing consumer tastes, preferences, spending patterns, and other lifestyle decisions could create inventory imbalances and adversely affect our performance and long-term 9 Table of Contents relationships with our customers. Additionally, failure to accurately predict changing consumer tastes may result in excess inventory, which could result in additional markdowns and adversely affect our operating results.
Failure to accurately predict constantly changing consumer tastes, preferences, spending patterns, and other lifestyle decisions could create inventory imbalances and adversely affect our performance and long-term relationships with our customers. Additionally, failure to accurately predict changing consumer tastes may result in excess inventory, which could result in additional markdowns and adversely affect our operating results.
We have and may continue to experience an increase in costs associated with shipping digital orders due to complimentary upgrades, split shipments, freight surcharges due to peak capacity constraints, and additional long-zone shipments necessary to ensure timely delivery for the holiday season.
We have and may continue to experience an increase in costs associated with shipping digital orders due to complimentary upgrades, split shipments, freight surcharges due to peak capacity constraints, and additional 11 Table of Contents long-zone shipments necessary to ensure timely delivery for the holiday season.
Our vendors may not adhere to our Terms of Engagement or to applicable laws. A substantial portion of our merchandise is received from vendors and factories outside of the United States. We require all of our suppliers to comply with all applicable local and national laws and regulations and our Terms of Engagement for Kohl's Business Partners.
A substantial portion of our merchandise is received from vendors and factories outside of the United States. We require all of our suppliers to comply with all applicable local and national laws and regulations and our Terms of Engagement for Kohl's Business Partners.
The continuing migration and evolution of retailing to digital channels have increased our challenges in differentiating ourselves from other retailers especially as it relates to national brands. In particular, consumers can quickly and 7 Table of Contents conveniently comparison shop with digital tools, which can lead to decisions based solely on price.
The continuing migration and evolution of retailing to digital channels has increased our challenges in differentiating ourselves from other retailers especially as it relates to national brands. In particular, consumers can quickly and conveniently comparison shop with digital tools, which can lead to decisions based solely on price.
The impact of COVID-19 could continue to have a material adverse impact on our business, financial condition, and results of operations. The impact of and actions taken in response to COVID-19 have had a significant impact on the retail industry generally and our business specifically, starting in the first quarter of fiscal year 2020.
The impact of future outbreaks of COVID-19 or future pandemics could have a material adverse impact on our business, financial condition, and results of operations. The impact of and actions taken in response to COVID-19 had a significant impact on the retail industry generally and our business specifically, starting in the first quarter of fiscal year 2020.
Forward-looking statements may include comments 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 include the statements under management's discussion and analysis, financial and capital outlook and may include comments 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.
We devote significant resources to develop, promote, and protect proprietary brands that generate national recognition. In some cases, the proprietary brands or the marketing of such brands are tied to or affiliated with 10 Table of Contents well-known individuals.
We devote significant resources to develop, promote, and protect private brands that generate national recognition. In some cases, the private brands or the marketing of such brands are tied to or affiliated with well-known individuals.
Further, COVID-19 may also affect our business, financial condition, and results of operations in a manner that is not presently known to us or that we currently do not consider to present significant risks to our business, financial condition, and results of operations.
Further, any such outbreaks or pandemics may also affect our business, financial condition, and results of operations in a manner that is not presently known to us or that we currently do not consider to present significant risks to our business, financial condition, and results of operations.
If any of our significant vendors were to become subject to bankruptcy, receivership, or similar proceedings, we may be unable to arrange for alternate or replacement contracts, transactions, or business relationships on terms as favorable as current terms, which could adversely affect our sales and operating results.
If any of our significant vendors were to become subject to bankruptcy, receivership, or similar proceedings, we may be unable to arrange for alternate or replacement contracts, transactions, or business relationships on terms as favorable as current terms, which could adversely affect our sales and operating results. 9 Table of Contents Our vendors may not adhere to our Terms of Engagement or to applicable laws.
If our credit ratings were to be further downgraded, or general market conditions were to ascribe higher risk to our credit rating levels, our industry, or our Company, our access to capital and the cost of debt financing will be negatively impacted. Accordingly, a downgrade may cause our cost of borrowing to further increase.
If our credit ratings were to be further downgraded, or general market conditions were to ascribe higher risk to our credit rating levels, our industry, or our Company, our access to capital and the cost of debt financing may be negatively impacted.
A significant portion of our business is apparel and is subject to weather conditions. As a result, our operating results may be adversely affected by severe or unexpected weather conditions.
A significant portion of our business is apparel and is subject to weather conditions. As a result, our operating results may be adversely affected by severe or unexpected weather conditions (including those that may be caused by climate change).
In particular, we rely on our information systems to effectively manage sales, distribution, and merchandise planning and allocation functions. We also generate sales through the operations of our Kohls.com website. We frequently make investments that will help maintain and update our existing information systems. We also depend on third parties as it relates to our information systems.
In particular, we rely on our information systems to effectively manage sales, distribution, and merchandise planning and allocation functions. We also generate sales through the operations of our Kohls.com website. We frequently make investments that will help 10 Table of Contents maintain and update our existing information systems.
Various aspects of our operations are subject to federal, state, or local laws, rules, and regulations, any of which may change from time to time. The costs and other effects of new or changed legal requirements cannot be determined with certainty.
Legal and Regulatory Risks Regulatory and legal matters could adversely affect our business operations and change financial performance. Various aspects of our operations are subject to federal, state, or local laws, rules, and regulations, any of which may change from time to time. The costs and other effects of new or changed legal requirements cannot be determined with certainty.
Damage to the reputations (whether or not justified) of the Kohl’s brand, our proprietary brand names, or any affiliated individuals or companies with which we have partnered, could arise from product failures; concerns about human rights, working conditions, and other labor rights and conditions where merchandise is produced; perceptions of our pricing and return policies; litigation; vendor violations of our Terms of Engagement; perceptions of the national vendors and/or third party companies with which we partner; or various other forms of adverse publicity, especially in social media outlets.
Damage to the reputations (whether or not justified) of the Kohl’s brand, our private brand names, or any affiliated individuals or companies with which we have partnered, could arise from product failures; concerns about human rights, working conditions, and other labor rights and conditions where merchandise is produced; perceptions of our pricing and return policies; litigation; vendor violations of our Terms of Engagement; perceptions of the national vendors and/or third party companies with which we partner; failure to realize our ESG goals on a timely basis or at all; failure to meet evolving investor and other stakeholder expectations with respect to ESG matters; or various other forms of adverse publicity, especially in social media outlets.
The price and availability of raw materials may fluctuate substantially, depending on a variety of factors, including demand, weather, supply conditions, transportation costs, energy prices, work stoppages, government regulation and policy, economic climates, market speculation, and other unpredictable factors.
Increases in the price of merchandise, raw materials, fuel, and labor, or their reduced availability, increase our cost of merchandise sold. The price and availability of raw materials may fluctuate substantially, depending on a variety of factors, including demand, weather, supply conditions, transportation costs, energy prices, work stoppages, government regulation and policy, economic climates, market speculation, and other unpredictable factors.
We may also face demands or requests from our associates for additional compensation, healthcare benefits, or other terms as a result of COVID-19 that could increase costs, and we could experience labor disputes or disruptions as we continue to implement our COVID-19 mitigation plans.
We may also face demands or requests from our associates for additional compensation, healthcare benefits, or other terms as a result of a future outbreak or pandemic that could increase costs, and we could experience labor disputes or disruptions as we implement our mitigation plans. Our mitigation plans may require a large investment of time and focus.
As a result, we face certain operational risks, including heightened cybersecurity risks that may continue past the time when our 8 Table of Contents associates return to work. We cannot predict if further outbreaks or new variants would necessitate corporate office closures again.
Our corporate office associates may work remotely in a hybrid work environment, posing operational risks, including heightened cybersecurity risks that may continue past the time when our associates return to work. We cannot predict if further outbreaks or new variants would necessitate corporate office closures again.
We source the majority of our merchandise from manufacturers located outside of the United States, primarily in Asia. Major developments in tax policy or trade relations, such as the imposition of tariffs on imported products, could have a material adverse effect on our business, results of operations, and liquidity.
Major developments in tax policy or trade relations, such as the imposition of tariffs on imported products, could have a material adverse effect on our business, results of operations, and liquidity.
To the extent these measures are ineffective or perceived as ineffective, it may harm our reputation and customer loyalty and make our customers less likely to shop in our stores. Most of our corporate office associates continue to work remotely in a hybrid work environment.
To the extent these measures are ineffective or perceived as ineffective, it may harm our reputation and customer loyalty and make our customers less likely to shop in our stores.
These risks related to our business, financial condition, and results of operations, are especially heightened given the uncertainty as to the extent and duration of COVID-19’s impact.
These risks related to our business, financial condition, and results of operations, were especially heightened given the uncertainty as to the extent and duration of COVID-19’s impact and could be again during any future outbreak or pandemic.
In addition, the terms of future debt agreements could include more restrictive covenants, or require collateral, which may further restrict our business operations or cause future financing to be unavailable due to our covenant restrictions then in effect.
The terms of current and future debt agreements could restrict our business operations or cause future financing to be unavailable due to our covenant restrictions then in effect.
We have historically relied on the public debt markets to raise capital to partially fund our operations and growth. We have also historically maintained lines of credit with financial institutions.
Capital Risks We may be unable to raise additional capital or maintain bank credit on favorable terms, which could adversely affect our business and financial condition. We have historically relied on the public debt markets to raise capital to partially fund our operations and growth. We have also historically maintained lines of credit with financial institutions.
We also associate the Kohl’s brand with third-party national brands that we sell in our store and through our partnerships with companies in pursuit of strategic initiatives.
We also associate the Kohl’s brand with third-party national brands that we sell in our store and through our partnerships with companies in pursuit of strategic initiatives. Further, we focus on ESG as a key component of our strategy, and we have made regular public disclosures on our ESG efforts.
Additionally, the impact of COVID-19 on the financial markets may adversely impact our ability to raise funds through additional financings. COVID-19 could also cause or aggravate other risk factors that we identify in this section, which in turn could materially and adversely impact our business, financial condition, and results of operations.
Future outbreaks or pandemics could also cause or aggravate other risk factors that we identify in this section, which in turn could materially and adversely impact our business, financial condition, and results of operations.
This includes spending on inventory, capital projects and expenses, managing debt levels, and periodically returning value to our shareholders through share repurchases and dividends. To a large degree, capital efficiency reflects how well we manage our other key risks. The actions taken to address other specific risks may affect how well we manage the more general risk of capital efficiency.
Our capital allocation could be inefficient or ineffective. Our goal is to invest capital to maximize our overall long-term returns. This includes spending on inventory, capital projects and expenses, managing debt levels, and periodically returning value to our shareholders through share repurchases and dividends. To a large degree, capital efficiency reflects how well we manage our other key risks.
At present, we cannot estimate the full impact of COVID-19, but we expect it to continue to have a material adverse impact on our business, financial condition, and results of operations. Risks Relating to Revenues On March 20, 2020, we temporarily closed our stores nationwide.
Further outbreaks of COVID-19 or future pandemics could have a material adverse impact on our business, financial condition, and results of operations. Risks Relating to Revenues On March 20, 2020, we temporarily closed our stores nationwide, and were fully reopened as of July 2020.
Unanticipated changes in the pricing and other practices of our competitors may adversely affect our performance and lead to loss of market share in one or more categories. Tax and trade policies could adversely change. Uncertainty with respect to tax and trade policies, tariffs, and government regulations affecting trade between the United States and other countries has recently increased.
Unanticipated changes in the pricing and other practices of our competitors may adversely affect our performance and lead to loss of market share in one or more categories. 7 Table of Contents Tax, trade and climate, and other ESG-related policies and regulations could change or be implemented and adversely affect our business and results of operations.
If our credit ratings fall below desirable levels, our ability to access the debt markets and our cost of funds for new debt issuances could be adversely impacted.
Declines in our credit ratings may also adversely affect our ability to access the debt markets and the terms and our cost of funds for new debt issuances.
In addition, we cannot predict the continuing impact that COVID-19 will have on our suppliers, vendors, and other business partners, and each of their financial conditions; however, any material effect on these parties could adversely impact us.
In addition, we cannot predict the impact that future outbreaks or pandemics may have on our suppliers, vendors, and other business partners, and each of their financial conditions; however, any material effect on these parties could adversely impact us. 8 Table of Contents Risks Relating to Liquidity Future outbreaks or pandemics may require us to take actions to increase our cash position and preserve financial flexibility similar to those we took in 2020.
If we do not properly allocate our capital to maximize returns, we may fail to produce optimal financial results, and we may experience a reduction in shareholder value. 13 Table of Contents Legal and Regulatory Risks Regulatory and legal matters could adversely affect our business operations and change financial performance.
The actions taken to address other specific risks may affect how well we manage the more general risk of capital efficiency. If we do not properly allocate our capital to maximize returns, we may fail to produce optimal financial results, and we may experience a reduction in shareholder value.
Our stores remained closed until May 4, 2020, as we began to reopen stores in a phased approach and were fully reopened as of July 2020. In connection with the store closures, we temporarily furloughed store and store distribution center associates, as well as some corporate office associates whose work was significantly reduced by the store closures.
In connection with the store closures, we temporarily furloughed store and store distribution center associates, as well as some corporate office associates whose work was significantly reduced by the store closures. Due to the store closures, we experienced a temporary material decline in revenue and operating cash flow.
If our customer loyalty is negatively impacted or consumer discretionary spending habits change, including in connection with rising levels of unemployment, our market share and revenue may suffer as a result.
We cannot predict if further outbreaks or future pandemics would necessitate store closures again. Our response to future outbreaks or pandemics may also impact our customer loyalty. If our customer loyalty is negatively impacted or consumer discretionary spending habits change, our market share and revenue may suffer as a result.
If our access to capital was to become significantly constrained or our cost of capital was to increase significantly our financial condition, results of operations, and cash flows could be adversely affected. Our capital allocation could be inefficient or ineffective. Our goal is to invest capital to maximize our overall long-term returns.
A default under our revolving credit facility could trigger a cross-default, acceleration, or other consequences under other indebtedness or financial instruments to which we are a party. If our access to capital was to become significantly constrained or our cost of capital was to increase significantly our financial condition, results of operations, and cash flows could be adversely affected.
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Due to the store closures, we experienced a temporary material decline in revenue and operating cash flow. We cannot predict if further outbreaks or new variants would necessitate store closures again. Our response to COVID-19 may also impact our customer loyalty.
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Uncertainty with respect to tax and trade policies, tariffs, and government regulations affecting trade between the United States and other countries has recently increased. The majority of goods sourced are manufactured outside of the United States, primarily in Asia.
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Our management team is focused on mitigating the impact of COVID-19, which required and will continue to require a large investment of time and focus.
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Furthermore, increased governmental focus on climate change and other ESG matters may result in complex regulatory requirements that may directly or indirectly have a significant impact on the costs of our operations, including energy, resources used to produce our products and compliance costs, which may have a material adverse effect on our business and results of operations.
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This focus on mitigating the impact of COVID-19 required us to take measures to make modifications to our stores and their operation to help protect the health and well-being of our customers, associates and others as they re-opened.
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These actions may have a negative effect on our credit ratings, access to capital, and the cost and terms of debt financing, which may have a material adverse effect on our results of operations and liquidity.
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Risks Relating to Liquidity In light of the impact of COVID-19 on our business, we took several actions in fiscal 2020 to increase our cash position and preserve financial flexibility, including drawing down our $1.0 billion senior unsecured revolver and replacing and upsizing the unsecured credit facility with a $1.5 billion senior secured, asset based revolving credit facility and issuing $600 million in aggregate principal amount of 9.50% notes due in 2025.
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As with most retailers, we also experience inventory shrinkage due to theft or damage. Higher rates of inventory shrinkage or increased security or other costs to combat inventory shrinkage could adversely affect our results of operations and financial condition, and our efforts to contain or reduce inventory shrinkage may not be successful.
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As a result of these actions our long-term debt had increased substantially since February 1, 2020. However, we fully paid back the $1.5 billion in 2020 and we replaced that credit facility with an unsecured credit facility agreement under which no amounts were drawn down as of January 29, 2022.
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For example, we publish an annual ESG report to share information with our partners, shareholders, customers, and associates regarding our ESG progress. These disclosures reflect our goals and other expectations and assumptions, which are necessarily uncertain and may not be realized.
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In addition, we completed a sale leaseback for our San Bernardino E-Commerce fulfillment and distribution center which generated net proceeds of $193 million after fees. While our access to capital is currently similar to that prior to the pandemic, future outbreaks or new variants could necessitate actions similar to those we took in fiscal 2020.
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At the same time, investor and other stakeholder expectations, and voluntary and regulatory ESG disclosure standards and policies continue to evolve.
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As of January 29, 2022, we had credit ratings of Baa2/BBB-/BBB- all with stable outlooks based on our recovery in fiscal 2021 and our liability management exercises earlier in the year.
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We also depend on third parties as it relates to our information systems.
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Further, COVID-19 could lead to further disruption and volatility in the capital markets generally, which could increase the cost of accessing financing. Our access to additional financing and its cost continues to depend on a number of factors, including economic conditions, financing markets, and the outlook for our business and the retail industry as a whole.
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Our continued access to these liquidity sources on favorable terms depends on multiple factors, including our operating performance and debt ratings. During 2022, our credit ratings were reduced below investment grade, which resulted in an increase in the interest rate on a portion of our long-term debt. Further downgrades would cause our cost of borrowing to further increase.
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A default under our revolving credit facility could trigger a cross-default, acceleration, or other consequences under other indebtedness or financial instruments to which we are a party. There is no guarantee that debt financings will be available in the future to fund our obligations, or will be available on terms consistent with our expectations.
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Increases in the price of merchandise, raw materials, fuel, and labor, or their reduced availability, could increase our cost of merchandise sold.
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Our business could be impacted by a proxy contest for the election of directors at our 2022 Annual Meeting of Shareholders. On February 10, 2022, Macellum Badger Fund LP (together with its affiliates, “Macellum”) announced the nomination of ten candidates for election to our Board of Directors at our 2022 Annual Meeting of Shareholders.
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A proxy contest with Macellum for the election of directors could result in the Company incurring substantial costs, including proxy solicitation, public relations, and legal fees.
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Further, such a proxy contest could divert the attention of our Board of Directors, management, and employees, and may disrupt the momentum in our business and operations, as well as our ability to execute our strategic plan.
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The actions of Macellum may also create perceived uncertainties as to the future direction of our business or strategy, which may be exploited by our competitors and may make it more difficult to attract and retain qualified personnel, and may impact our relationship with investors, vendors, and other third parties.
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A proxy contest could also impact the market price and the volatility of our common stock. Capital Risks We may be unable to raise additional capital or maintain bank credit on favorable terms, which could adversely affect our business and financial condition.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeSome of our store leases provide for additional rent based on a percentage of sales over designated levels. 14 Table of Contents The following tables summarize key information about our Kohl's stores as of January 29, 2022: Number of Stores by State Mid-Atlantic Region: Northeast Region: South Central Region: Delaware 5 Connecticut 20 Arkansas 8 Maryland 23 Maine 5 Kansas 11 Pennsylvania 51 Massachusetts 25 Louisiana 7 Virginia 31 New Hampshire 11 Missouri 27 West Virginia 7 New Jersey 38 Oklahoma 11 New York 50 Texas 86 Rhode Island 4 Vermont 2 Total Mid-Atlantic 117 Total Northeast 155 Total South Central 150 Midwest Region: Southeast Region: West Region: Illinois 66 Alabama 14 Alaska 1 Indiana 41 Florida 51 Arizona 26 Iowa 18 Georgia 33 California 117 Michigan 46 Kentucky 18 Colorado 24 Minnesota 28 Mississippi 5 Idaho 6 Nebraska 8 North Carolina 31 Montana 3 North Dakota 4 South Carolina 17 Nevada 13 Ohio 59 Tennessee 20 New Mexico 5 South Dakota 4 Oregon 11 Wisconsin 41 Utah 12 Washington 19 Wyoming 2 Total Midwest 315 Total Southeast 189 Total West 239 Location Ownership Strip centers 946 Owned 410 Freestanding 156 Leased 517 Community & regional malls 63 Ground leased 238 Distribution Centers The following table summarizes key information about each of our distribution and e-fulfillment centers: Year Opened Square Footage Store distribution centers: Findlay, Ohio 1994 780,000 Winchester, Virginia 1997 450,000 Blue Springs, Missouri 1999 540,000 Corsicana, Texas 2001 540,000 Mamakating, New York 2002 605,000 San Bernardino, California 2002 575,000 Macon, Georgia 2005 560,000 Patterson, California 2006 365,000 Ottawa, Illinois 2008 330,000 E-commerce fulfillment centers: Monroe, Ohio 2001 1,225,000 San Bernardino, California 2010 970,000 Edgewood, Maryland 2011 1,450,000 DeSoto, Texas 2012 1,515,000 Plainfield, Indiana 2017 975,000 Etna, Ohio 2021 1,300,000 15 Table of Contents We own all of the distribution and e-fulfillment centers except the San Bernardino, California locations and Corsicana, Texas, which are leased.
Biggest changeThe following tables summarize key information about our Kohl's stores as of January 28, 2023: Number of Stores by State Mid-Atlantic Region: Northeast Region: South Central Region: Delaware 5 Connecticut 20 Arkansas 8 Maryland 23 Maine 5 Kansas 11 Pennsylvania 51 Massachusetts 26 Louisiana 7 Virginia 31 New Hampshire 11 Missouri 27 West Virginia 8 New Jersey 38 Oklahoma 11 New York 50 Texas 87 Rhode Island 4 Vermont 2 Total Mid-Atlantic 118 Total Northeast 156 Total South Central 151 Midwest Region: Southeast Region: West Region: Illinois 66 Alabama 14 Alaska 1 Indiana 41 Florida 51 Arizona 26 Iowa 18 Georgia 33 California 117 Michigan 46 Kentucky 18 Colorado 24 Minnesota 28 Mississippi 5 Idaho 6 Nebraska 8 North Carolina 31 Montana 3 North Dakota 4 South Carolina 17 Nevada 13 Ohio 59 Tennessee 20 New Mexico 5 South Dakota 4 Oregon 11 Wisconsin 41 Utah 12 Washington 21 Wyoming 2 Total Midwest 315 Total Southeast 189 Total West 241 14 Table of Contents Location Ownership Strip centers 947 Owned 409 Freestanding 160 Leased 518 Community & regional malls 63 Ground leased 243 Distribution Centers The following table summarizes key information about each of our distribution and e-fulfillment centers: Year Opened Square Footage Store distribution centers: Findlay, Ohio 1994 780,000 Winchester, Virginia 1997 450,000 Blue Springs, Missouri 1999 540,000 Corsicana, Texas 2001 540,000 Mamakating, New York 2002 605,000 San Bernardino, California 2002 575,000 Macon, Georgia 2005 560,000 Patterson, California 2006 365,000 Ottawa, Illinois 2008 330,000 E-commerce fulfillment centers: Monroe, Ohio 2001 1,225,000 San Bernardino, California 2010 970,000 Edgewood, Maryland 2011 1,450,000 DeSoto, Texas 2012 1,515,000 Plainfield, Indiana 2017 975,000 Etna, Ohio 2021 1,300,000 We own all of the distribution and e-fulfillment centers except the San Bernardino, California locations and Corsicana, Texas, which are leased.
Item 2. Pr operties Stores As of January 29, 2022, we operated 1,165 Kohl's stores with 82.2 million selling square feet in 49 states. Our typical store lease has an initial term of 20-25 years and four to eight five-year renewal options.
Item 2. Pr operties Stores As of January 28, 2023, we operated 1,170 Kohl's stores with 82 million selling square feet in 49 states. Our typical store lease has an initial term of 20-25 years and four to eight five-year renewal options.
Substantially all of our leases provide for a minimum annual rent that is fixed or adjusts to set levels during the lease term, including renewals.
Substantially all of our leases provide for a minimum annual rent that is fixed or adjusts to set levels during the lease term, including renewals. Some of our store leases provide for additional rent based on a percentage of sales over designated levels.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Item 3. Legal Proceedings We are not currently a party to any material legal proceedings but are subject to certain legal proceedings and claims from time to time that arise out of the conduct of our business. Item 4. Mine Saf ety Disclosures Not applicable.
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Item 3. Legal Proceedings For a description of our legal proceedings, see Note 7, Contingencies, of the notes to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K, which is incorporated by reference in response to this item.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThere is no fixed termination date for the repurchase program, and the program may be suspended, discontinued, or accelerated at any time. 18 Table of Contents 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 January 29, 2022: Period Total Number of Shares Purchased During Period 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 (Dollars in Millions) October 31 - November 27, 2021 3,365,248 $56.58 3,364,274 $1,033 November 28, 2021 – January 1, 2022 4,757,698 50.25 4,742,940 795 January 2 - January 29, 2022 2,313,892 51.67 2,313,737 675 Total 10,436,838 $52.61 10,420,951
Biggest changeThere is no fixed termination date for the repurchase program, and the program may be suspended, discontinued, or accelerated at any time. 18 Table of Contents 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 January 28, 2023: Period (1) Total Number of Shares Purchased During Period 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 (Dollars in Millions) October 30 - November 26, 2022 6,140,576 $16.29 6,139,693 $2,476 November 27 – December 31, 2022 7,712 27.19 — 2,476 January 1 - January 28, 2023 962 28.98 — 2,476 Total 6,149,250 $16.31 6,139,693 1) During the third quarter of 2022 we entered into a $500 million accelerated share repurchase agreement ("ASR") and received an initial delivery of 11.8 million shares, representing 80% of the total shares that were expected to be repurchased under the ASR.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers In April 2021, our Board of Directors increased the remaining share repurchase authorization under our existing share repurchase program to $2.0 billion. In February 2022, our Board of Directors increased the remaining share repurchase authorization under our existing share repurchase program to $3.0 billion.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers In February 2022, our Board of Directors increased the remaining share repurchase authorization under our existing share repurchase program to $3.0 billion. Purchases under the repurchase program may be made in the open market, through block trades, and other negotiated transactions.
Item 5. Market for Registrant’s Common Equity, Related Sto ckholder Matters, and Issuer Purchases of Equity Securities Market information Our Common Stock has been traded on the New York Stock Exchange ("NYSE") since May 19, 1992, under the symbol “KSS.” On February 28, 2022, our Board of Directors declared a quarterly cash dividend of $0.50 per common share.
Item 5. Market for Registrant’s Common Equity, Related Sto ckholder Matters, and Issuer Purchases of Equity Securities Market information Our Common Stock has been traded on the New York Stock Exchange ("NYSE") since May 19, 1992, under the symbol “KSS.” Holders As of March 8, 2023, there were approximately 3,300 record holders of our Common Stock.
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.
We expect to execute the share repurchase program primarily in open market transactions, subject to market conditions.
The Peer Group Index is weighted by the market capitalization of each component company at the beginning of each period. The graph assumes an investment of $100 on January 28, 2017 and reinvestment of dividends. The calculations exclude trading commissions and taxes.
The S&P 500 Retailing Index is weighted by the market capitalization of each component company at the beginning of each period. The graph assumes an investment of $100 on February 3, 2018 and reinvestment of dividends.
Holders As of March 9, 2022, there were approximately 3,400 record holders of our Common Stock. 17 Table of Contents Performance Graph The graph below compares our cumulative five-year shareholder return to that of the Standard & Poor’s (“S&P”) 500 Index and a Peer Group Index that is consistent with the compensation peer group used in the Compensation Discussion & Analysis section of our Proxy Statement for our 2022 Annual Meeting of Shareholders.
Performance Graph The graph below compares our cumulative five-year shareholder return to that of the Standard & Poor’s (“S&P”) 500 Index, the S&P 500 Retailing Index, and the Peer Group Index. The S&P 500 Retailing Index was calculated by S&P Global, a Standard & Poor’s business and includes companies within the S&P Retailing Index.
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The dividend will be paid on March 30, 2022 to shareholders of record as of March 16, 2022. In 2021, we paid aggregate cash dividends of $147 million.
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The calculations exclude trading commissions and taxes. 17 Table of Contents Company / Index Feb 3, 2018 Feb 2, 2019 Feb 1, 2020 Jan 30, 2021 Jan 29, 2022 Jan 28, 2023 Kohl’s Corporation $100.00 $108.79 $73.34 $78.39 $108.98 $60.28 S&P 500 Index 100.00 99.94 121.49 142.45 172.36 160.94 S&P 500 Retailing Index 100.00 108.22 130.53 184.54 195.42 161.84 Peer Group Index 100.00 110.16 122.23 137.23 146.12 165.47 The companies included in the Peer Group are: Bed Bath & Beyond, Inc.; Best Buy Co., Inc.; Burlington Stores, Inc.; DICK'S Sporting Goods, Inc.; Dollar Tree, Inc.; Foot Locker, Inc.; The Gap, Inc.; Macy’s, Inc.; Nordstrom, Inc.; Ross Stores, Inc.; The TJX Companies, Inc.; and Ulta Beauty, Inc.
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The Peer Group Index was calculated by S&P Global, a Standard & Poor’s business and includes Bed Bath & Beyond, Inc.; Best Buy Co., Inc.; Burlington Stores, Inc.; DICK'S Sporting Goods, Inc.; Dollar Tree, Inc.; Foot Locker, Inc.; The Gap, Inc.; Macy’s, Inc.; Nordstrom, Inc.; Ross Stores, Inc.; The TJX Companies, Inc.; and Ulta Beauty, Inc.
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The Peer group is being replaced with the S&P 500 retailing index going forward as the S&P retailing index provides a relevant comparison against which to measure our stock performance due to the broader group of participants.
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Company / Index Jan 28, 2017 Feb 3, 2018 Feb 2, 2019 Feb 1, 2020 Jan 30, 2021 Jan 29, 2022 Kohl’s Corporation $100.00 $171.53 $186.59 $125.80 $134.46 $186.92 S&P 500 Index 100.00 122.83 122.76 149.23 174.97 211.72 Peer Group Index 100.00 113.44 124.96 138.66 155.67 165.75 Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities We did not sell any equity securities in fiscal year 2021 that were not registered under the Securities Act.
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Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities We did not sell any equity securities in fiscal year 2022 that were not registered under the Securities Act.
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Final settlement occurred during the fourth quarter of 2022 with an additional 6.1 million shares of common stock being delivered. The ASR was part of the $3.0 billion share repurchase program authorized by our Board of Directors in February 2022.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeThis provision allows losses generated in 2020 to be carried back to the five preceding years, which include years in which the statutory tax rate was 35%. 25 Table of Contents 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 2021 GAAP $1,680 $1,219 $938 $6.32 Loss (gain) on extinguishment of debt — 201 201 1.35 Impairments, store closing, and other costs — — — — (Gain) on sale of real estate — — — — Income tax impact of items noted above — — (50) (0.34) Adjusted (non-GAAP) $1,680 $1,420 $1,089 $7.33 2020 GAAP $(262) $(546) $(163) $(1.06) Loss (gain) on extinguishment of debt — — — — Impairments, store closing, and other costs 89 89 89 0.58 (Gain) on sale of real estate (127) (127) (127) (0.82) Income tax impact of items noted above — — 15 0.09 Adjusted (non-GAAP) $(300) $(584) $(186) $(1.21) 2019 GAAP $1,099 $901 $691 $4.37 Loss (gain) on extinguishment of debt — (9) (9) (0.06) Impairments, store closing, and other costs 113 113 113 0.71 (Gain) on sale of real estate — — — — Income tax impact of items noted above — — (26) (0.16) Adjusted (non-GAAP) $1,212 $1,005 $769 $4.86 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.
Biggest changeGAAP to Non-GAAP Reconciliation (Dollars in Millions, Except per Share Data) Operating Income (Loss) (Loss) Income before Income Taxes Net (Loss) Income (Loss) Earnings per Diluted Share 2022 GAAP $246 $(58) $(19) $(0.15) 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) (1) $246 $(58) $(19) $(0.15) 2021 GAAP $1,680 $1,219 $938 $6.32 Loss on extinguishment of debt — 201 201 1.35 Impairments, store closing, and other costs — — — — (Gain) on sale of real estate — — — — Income tax impact of items noted above — — (50) (0.34) Adjusted (non-GAAP) $1,680 $1,420 $1,089 $7.33 2020 GAAP $(262) $(546) $(163) $(1.06) Loss on extinguishment of debt — — — — Impairments, store closing, and other costs 89 89 89 0.58 (Gain) on sale of real estate (127) (127) (127) (0.82) Income tax impact of items noted above — — 15 0.09 Adjusted (non-GAAP) $(300) $(584) $(186) $(1.21) (1) Amounts shown for 2022 are GAAP as there are no adjustments to Non-GAAP.
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%.
Comparable sales includes all store and digital sales, except sales from stores open less than 12 months, stores that have been closed, and stores that have been relocated where square footage has changed by more than 10%.
There can be no assurances that such factors will not 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.
There can be no assurances that such factors will not 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 achieve an investment grade rating.
Cost of Merchandise Sold and Gross Margin 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.
Cost of Merchandise Sold and Gross Margin 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; and terms cash discount.
Retail Inventory Method and Inventory Valuation Merchandise inventories are valued at the lower of cost or market using the retail inventory method (“RIM”). Under RIM, the valuation of inventory at cost and the resulting gross margins are calculated by applying a cost-to-retail ratio to the retail value of inventory.
Retail Inventory Method and Inventory Valuation The majority of our merchandise inventories are valued at the lower of cost or market using the retail inventory method (“RIM”). Under RIM, the valuation of inventory at cost and the resulting gross margins are calculated by applying a cost-to-retail ratio to the retail value of inventory.
The parties share equally in the operating profit of the partnership which incorporates all expenses to run the partnership including depreciation expense related to the assets. Amounts due to Sephora for their share of the operating profits are recorded in Cost of merchandise sold.
The parties share equally in the operating profit of the arrangement which incorporates all expenses to run the arrangement including depreciation expense related to the assets. Amounts due to Sephora for their share of the operating profits are recorded in cost of merchandise sold.
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.
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 (SG&A) expenses while other retailers may include these expenses in cost of merchandise sold.
See Notes 2 and 3 to the Consolidated Financial Statements for amounts outstanding on January 29, 2022 related to debt and leases. Other purchase obligations primarily include royalties, legally binding minimum lease and interest payments for stores opening in 2022 or later, as well as payments associated with technology, marketing, and donation agreements.
See Notes 2 and 3 to the Consolidated Financial Statements for amounts outstanding on January 28, 2023 related to debt and leases. Other purchase obligations primarily include royalties, legally binding minimum lease and interest payments for stores opening in 2023 or later, as well as payments associated with technology, marketing, and donation agreements.
However, these non-GAAP financial measures are not intended to replace the comparable GAAP measures. Inflation 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 inflation, and costs to source our merchandise, including tariffs.
However, these non-GAAP financial measures are not intended to replace the comparable GAAP measures. Inflation We expect that our operations will continue to be influenced by general economic conditions, including food, fuel, and energy prices, higher unemployment, wage inflation, and costs to source our merchandise, including tariffs.
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 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, both of which occurred in 2022.
Item 7. Management’s Discussion and An alysis of Financial Condition and Results of Operations Executive Summary Kohl's is a leading omnichannel retailer operating 1,165 stores and a website (www.Kohls.com) as of January 29, 2022. Our Kohl's stores and website sell moderately-priced private and national brand apparel, footwear, accessories, beauty, and home products.
Item 7. Management’s Discussion and An alysis of Financial Condition and Results of Operations Executive Summary Kohl's is a leading omnichannel retailer operating 1,170 stores and a website (www.Kohls.com) as of January 28, 2023. Our Kohl's stores and website sell moderately-priced private and national brand apparel, footwear, accessories, beauty, and home products.
Our current goals are to maintain a ratio that demonstrates our commitment to an investment grade rating and allows us to operate with an efficient capital structure for our size, growth plans, and industry. Our adjusted debt to adjusted EBITDAR calculation may not be comparable to similarly-titled measures reported by other companies.
Our current goal is to achieve a ratio that demonstrates our commitment to an investment grade rating and allows us to operate with an efficient capital structure for our size, growth plans, and industry. Our adjusted debt to EBITDAR calculation may not be comparable to similarly-titled measures reported by other companies.
The obligations were $582 million as of January 29, 2022. Off-Balance Sheet Arrangements We have not provided any financial guarantees as of year-end 2021. 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.
The obligations were $608 million as of January 28, 2023. Off-Balance Sheet Arrangements We have not provided any financial guarantees as of year-end fiscal 2022. 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.
Our Adjusted ROI calculation may not be comparable to similarly titled measures reported by other companies. Adjusted ROI should be evaluated in addition to, and not considered a substitute for, other GAAP financial measures.
Our Adjusted ROI calculation may not be comparable to similarly titled measures reported by other companies. Adjusted ROI should be evaluated in addition to, and not considered a substitute for, other GAAP financial measures. See the key financial ratio calculations below for our Adjusted ROI calculation.
Adjusted debt to adjusted EBITDAR should be evaluated in addition to, and not considered a substitute for, other GAAP financial measures. See the key financial ratio calculations section below for our adjusted debt to adjusted EBITDAR calculation.
Adjusted debt to EBITDAR should be evaluated in addition to, and not considered a substitute for, other GAAP financial measures. See the key financial ratio calculations section below for our adjusted debt to EBITDAR calculation. 29 Table of Contents Key Financial Ratio Calculations The following table includes our ROI calculation.
Other Revenue Other revenue includes revenue from credit card operations, third-party advertising on our website, unused gift cards and merchandise return cards (breakage), and other non-merchandise revenue. 22 Table of Contents The following graph summarizes other revenue: Other revenue increased $38 million in 2021.
Other Revenue Other revenue includes revenue from credit card operations, third-party advertising on our website, unused gift cards and merchandise return cards (breakage), and other non-merchandise revenue. 21 Table of Contents The following graph summarizes other revenue: Other revenue decreased $25 million in 2022.
All ratios are non-GAAP financial measures: (Dollars in Millions) 2021 2020 2019 Operating (loss) income $1,680 $(262) $1,099 Depreciation and amortization 838 874 917 Rent expense 298 314 314 EBITDAR 2,816 926 2,330 Impairments, store closing, and other costs — 89 113 (Gain) on sale of real estate — (127) — Adjusted EBITDAR $2,816 $888 $2,443 Average: (a) Total assets $15,308 $15,288 $14,802 Cash equivalents and long-term investments (b) (1,779) (1,704) (393) Other assets (52) (30) (31) Accumulated depreciation and amortization 7,916 7,414 6,854 Accounts payable (1,633) (1,559) (1,495) Accrued liabilities (1,308) (1,193) (1,264) Other long-term liabilities (375) (275) (231) Gross investment (“AGI”) $18,077 $17,941 $18,242 Less: Operating lease, finance lease, and financing obligation assets $(3,861) $(3,442) $(3,559) Add: Cash-based lease equivalent debt (c) 4,650 4,383 4,547 Adjusted gross investment ("AGI") $18,866 $18,882 $19,230 Adjusted ROI (d) 14.9% 4.7% 12.7% (a) Represents average of five most recent quarter-end balances.
All ratios are non-GAAP financial measures: (Dollars in Millions) 2022 2021 2020 Operating income (loss) $246 $1,680 $(262) Depreciation and amortization 808 838 874 Rent expense 264 298 314 EBITDAR 1,318 2,816 926 Impairments, store closing, and other costs — — 89 (Gain) on sale of real estate — — (127) Adjusted EBITDAR $1,318 $2,816 $888 Average: (a) Total assets $15,302 $15,308 $15,288 Cash equivalents and long-term investments (b) (383) (1,779) (1,704) Other assets (50) (52) (30) Accumulated depreciation and amortization 8,339 7,916 7,414 Accounts payable (1,641) (1,633) (1,559) Accrued liabilities (1,254) (1,308) (1,193) Other long-term liabilities (366) (375) (275) Gross investment $19,947 $18,077 $17,941 Less: Operating lease, finance lease, and financing obligation assets (c) $(4,699) $(3,861) $(3,442) Add: Cash-based lease equivalent debt (c) 4,488 4,650 4,383 Adjusted gross investment $19,736 $18,866 $18,882 Adjusted ROI (d) 6.7% 14.9% 4.7% (a) Represents average of five most recent quarter-end balances.
In April 2021, we completed a cash tender offer for $1.0 billion of senior unsecured debt.
The notes mature in May 2031. In April 2021, we completed a cash tender offer for $1.0 billion of senior unsecured debt.
Kohl’s is the principal on sales transactions with our customers and we recognize sales, cost of merchandise sold, and operating expenses in the respective lines on our consolidated statements of income. Kohl’s owns and manages the inventory and funds capital expenditures for the arrangement.
The arrangement involves various activities including the merchandising, marketing, and operations of the shops and Kohls.com. Kohl’s is the principal on sales transactions with our customers and we recognize sales, cost of merchandise sold, and operating expenses in the respective lines on our consolidated statements of operations. Kohl’s owns and manages the inventory and funds capital expenditures for the arrangement.
We also place dollar limits on our investments in individual funds or instruments. 26 Table of Contents 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 • Dividend payments • Share repurchases • Debt reduction • Cash flow from operations • Line of credit under our revolving credit facility • Issuance of debt The following table includes cash balances and changes: (Dollars in Millions) 2021 2020 2019 Cash and cash equivalents $1,587 $2,271 $723 Net cash provided by (used in): Operating activities $2,271 $1,338 $1,657 Investing activities (570) (137) (837) Financing activities (2,385) 347 (1,031) Free cash flow (a) $1,556 $908 $700 (a) Non-GAAP financial measure.
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 • Dividend payments • Share repurchases • Debt reduction • Cash flow from operations • Line of credit under our revolving credit facility • Issuance of debt 25 Table of Contents The following table includes cash balances and changes: (Dollars in Millions) 2022 2021 2020 Cash and cash equivalents $153 $1,587 $2,271 Net cash provided by (used in): Operating activities $282 $2,271 $1,338 Investing activities (783) (570) (137) Financing activities (933) (2,385) 347 Free cash flow (a) $(639) $1,556 $908 (a) Non-GAAP financial measure.
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 and/or repayments of long-term debt, and dividend payments. Financing activities used $2.4 billion in 2021 compared to generating cash of $347 million 2020.
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 and/or repayments of long-term debt, and dividend payments.
We believe that free cash flow represents our ability to generate additional cash flow from our business operations. 29 Table of Contents The following table reconciles net cash provided by operating activities (a GAAP measure) to free cash flow (a non-GAAP measure): (Dollars in Millions) 2021 2020 2019 Net cash provided by operating activities $2,271 $1,338 $1,657 Acquisition of property and equipment (605) (334) (855) Finance lease and financing obligation payments (125) (105) (113) Proceeds from financing obligations 15 9 11 Free cash flow $1,556 $908 $700 Key Financial Ratios Key financial ratios that provide certain measures of our liquidity are as follows: (Dollars in Millions) 2021 2020 Working capital $1,737 $2,813 Current ratio 1.53 1.93 Our working capital and inventory levels typically build throughout the fall, peaking during the November and December holiday selling season.
The following table reconciles net cash provided by operating activities (a GAAP measure) to free cash flow (a non-GAAP measure): (Dollars in Millions) 2022 2021 2020 Net cash provided by operating activities $282 $2,271 $1,338 Acquisition of property and equipment (826) (605) (334) Finance lease and financing obligation payments (106) (125) (105) Proceeds from financing obligations 11 15 9 Free cash flow $(639) $1,556 $908 Key Financial Ratios Key financial ratios that provide certain measures of our liquidity are as follows: (Dollars in Millions) 2022 2021 Working capital $621 $1,737 Current ratio 1.20 1.53 Our working capital and inventory levels typically build throughout the fall, peaking during the November and December holiday selling season. 28 Table of Contents The decrease in our working capital and current ratio are primarily due to lower cash balances as a result of a decrease in cash provided by operating activities and higher capital expenditures.
Other Expenses (Dollars in Millions) 2021 2020 2019 Depreciation and amortization $838 $874 $917 Impairments, store closing, and other costs — 89 113 (Gain) on the sale of real estate — (127) — Interest expense, net 260 284 207 Loss (gain) on extinguishment of debt 201 — (9) Depreciation and amortization decreases in 2021 were driven by reduced capital spending in 2020 due to COVID-19.
Other Expenses (Dollars in Millions) 2022 2021 2020 Depreciation and amortization $808 $838 $874 Impairments, store closing, and other costs — — 89 (Gain) on the sale of real estate — — (127) Interest expense, net 304 260 284 Loss on extinguishment of debt — 201 — Depreciation and amortization decreased in 2022, driven by reduced capital spending in technology.
Free cash flow should be evaluated in addition to, and not considered a substitute for, other financial measures such as net income and net cash provided by operating activities.
Free cash flow should be evaluated in addition to, and not considered a substitute for, other financial measures such as net income and net cash provided by operating activities. We believe that free cash flow represents our ability to generate additional cash flow from our business operations.
The following graph summarizes cost of merchandise sold and gross margin as a percent of net sales: 23 Table of Contents Gross margin is calculated as net sales less cost of merchandise sold. Gross margin as a percent of net sales increased 700 basis points in 2021.
The following graph summarizes cost of merchandise sold and gross margin as a percent of net sales: Gross margin is calculated as net sales less cost of merchandise sold. Gross margin as a percent of net sales decreased 485 basis points in 2022 compared to 2021.
In October 2021, we entered into a Credit Agreement with various lenders which provides for a $1.0 billion senior unsecured five-year revolving credit facility that will mature in October 2026 and replaced our existing senior secured revolving credit facility.
In January 2023, we entered into a Credit Agreement with various lenders which provides for a $1.5 billion senior secured, asset based revolving credit facility that will mature in January 2028 and replaced our existing senior unsecured revolving credit facility.
The shrinkage rate from the most recent physical inventory, in combination with current events and historical experience, is used as the standard for the shrinkage accrual rate for the next inventory cycle. Historically, our actual physical inventory count results have shown our estimates to be reliable.
The shrinkage rate from the most recent physical inventory, in combination with current events and historical experience, is used as the standard for the shrinkage accrual rate for the next inventory cycle.
Although we believe we have adequately reserved for our uncertain tax positions, no assurance can be given that the final tax outcome of these matters will not be different. Income taxes are further described in Note 5 of the Consolidated Financial Statements. Leases Accounting for leased properties requires compliance with technical accounting rules and significant judgment by management.
Although we believe we have adequately reserved for our uncertain 32 Table of Contents tax positions, no assurance can be given that the final tax outcome of these matters will not be different. Income taxes are further described in Note 5 of the Consolidated Financial Statements.
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.
Net Sales Net sales includes revenue from the sale of merchandise, net of expected returns, and shipping revenue. 20 Table of Contents 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.
Markdown support related to merchandise that has not yet been sold is recorded in inventory. 33 Table of Contents We also receive support from vendors for marketing and other costs that we have incurred to sell the vendors’ merchandise.
This markdown support generally relates to sold inventory or permanent markdowns and, accordingly, is reflected as a reduction to cost of merchandise sold. Markdown support related to merchandise that has not yet been sold is recorded in inventory. We also receive support from vendors for marketing and other costs that we have incurred to sell the vendors’ merchandise.
Management believes this normalizes for timing within the lease term and the impact of lease amendments triggered by our investment in the Sephora shop-in-shops. This results in a 2020 adjusted debt to adjusted EBITDAR of 7.70 versus the previous reported 7.59.
Management believes this normalizes for timing within the lease term and the impact of lease amendments triggered by our investment in the Sephora shop-in-shops. (d) Adjusted EBITDAR divided by adjusted gross investment.
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.
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.
We follow a disciplined approach to capital allocation based on the following priorities: first we invest in opportunities to drive long-term profitability in our business as well as maintain our current operations; second we pay a quarterly dividend with a goal to increase it annually; and third we return excess cash to shareholders through our share repurchase program.
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 third we return excess cash to shareholders through our share repurchase program. In addition, when appropriate, we will complete debt reduction transactions.
Fair market value is used in determining whether the lease is accounted for as an operating lease or a finance lease. Leases are further described in Note 3 of the Consolidated Financial Statements. Sephora Arrangement In 2020, we entered into an arrangement with Sephora to be the exclusive beauty offering and bring a transformational, elevated beauty experience to Kohl’s.
Fair market value is used in determining whether the lease is accounted for as an operating lease or a finance lease. Leases are further described in Note 3 of the Consolidated Financial Statements.
Application of these accounting rules and assumptions made by management will determine if the lease is accounted for as a finance lease, an operating lease, or a financing obligation. 34 Table of Contents The following are significant estimates used by management in accounting for real estate and other leases: • Accounting lease term —Our accounting lease term includes all noncancelable periods and renewal periods that are reasonably assured of being exercised.
The following are significant estimates used by management in accounting for real estate and other leases: • Accounting lease term —Our accounting lease term includes all noncancelable periods and renewal periods that are reasonably assured of being exercised.
These amounts do not take into consideration fulfillment node, digital returns processed in stores, and coupon behaviors. Comparable sales and digital penetration measures vary across the retail industry. As a result, our comparable sales calculation and digital penetration are non-GAAP measures that may not be consistent with the similarly titled measures reported by other companies.
Comparable sales and digital penetration measures vary across the retail industry. As a result, our comparable sales calculation and digital penetration are non-GAAP measures that may not be consistent with the similarly titled measures reported by other companies. The following graph summarizes net sales dollars and comparable sales over the prior year.
As our stores were closed for a period during 2020, we have not included a discussion of 2020 or 2021 comparable sales as we do not believe it is a meaningful metric over this period of time. We measure digital penetration as digital sales over net sales.
As our stores were closed for a period during 2020, we have not included a discussion of 2020 or 2021 comparable sales as we do not believe it is a meaningful metric over this period of time. 2022 compared to 2021 Net sales decreased $1.3 billion, or (7.1%), to $17.2 billion for 2022. • The decrease in net sales was driven by lower sales in both stores and digital as a result of lower traffic.
For 2019, fourth quarter 2018 balances were adjusted to reflect the impact of the new lease accounting standard. (b) Represents excess cash not required for operations. (c) Represents eight times cash rent for operating leases, finance leases, and financial obligations. A calculation of cash rent can be found in Note 3 of the Consolidated Financial Statements.
(b) Represents excess cash not required for operations. (c) Lease assets presented under US GAAP are replaced with eight times cash rent for operating leases, finance leases, and financial obligations. A summary of cash rent can be found in Note 3 of the Consolidated Financial Statements.
The following graph summarizes the changes in SG&A by expense type between 2020 and 2021: SG&A increased $457 million, or 9.1%, to $5.5 billion for 2021.
The following graph summarizes the changes in SG&A by expense type between 2021 and 2022: SG&A increased $109 million, or 2.0%, to $5.6 billion for 2022. As a percentage of revenue, SG&A deleveraged by (268) basis points.
Return on Investment Ratio The following table shows our return on investment ratio (a non-GAAP financial measure): 2021 2020 2019 Adjusted return on gross investment ("ROI") 14.9% 4.7% 12.7% Changes in earnings drove changes in our return on investment ratio. The prior year calculations have been revised to be consistent with our current year presentation.
Return on Investment Ratio The following table shows our return on investment ratio (a non-GAAP financial measure): 2022 2021 2020 Adjusted return on gross investment ("ROI") 6.7% 14.9% 4.7% Changes in earnings drove changes in our return on investment ratio. We believe that Adjusted ROI is a useful financial measure in evaluating our operating performance.
Vendor Allowances We frequently receive allowances from our vendors for markdowns that we have taken in order to sell the vendor’s merchandise and/or to support gross margins earned on those sales. This markdown support generally relates to sold inventory or permanent markdowns and, accordingly, is reflected as a reduction to cost of merchandise sold.
Historically, our actual physical inventory count results have shown our estimates to be reliable. 31 Table of Contents Vendor Allowances We frequently receive allowances from our vendors for markdowns that we have taken in order to sell the vendors' merchandise and/or to support gross margins earned on those sales.
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.
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.
The following table includes our adjusted debt to adjusted EBITDAR calculation: (Dollars in Millions) 2021 2020 Finance lease and financing obligations $2,251 $1,502 Long-term debt 1,910 2,451 Total debt $4,161 $3,953 Operating leases 2,624 2,786 Total debt (including operating leases) $6,785 $6,739 Less: Operating lease, finance lease, and financing obligation liabilities (4,875) (4,288) Add: Cash-based lease equivalent debt (a) 4,650 4,383 Adjusted debt $6,560 $6,834 Operating income $1,680 $(262) Depreciation and amortization 838 874 Rent expense 298 314 EBITDAR $2,816 $926 Impairments, store closing, and other costs — 89 (Gain) on sale of real estate — (127) Adjusted EBITDAR $2,816 $888 Adjusted debt to adjusted EBITDAR 2.33 7.70 (a) Represents eight times cash rent for operating leases, finance leases, and financial obligations.
The following table includes our adjusted debt to EBITDAR calculation: (Dollars in Millions) 2022 2021 Finance lease and financing obligations $2,880 $2,251 Borrowings under revolving credit facility 85 — Long-term debt 1,912 1,910 Total debt $4,877 $4,161 Operating leases 2,689 2,624 Total debt (including operating leases) $7,566 $6,785 Less: Operating lease, finance lease, and financing obligation liabilities (a) (5,569) (4,875) Add: Cash-based lease equivalent debt (a) 4,488 4,650 Adjusted debt $6,485 $6,560 Operating income $246 $1,680 Depreciation and amortization 808 838 Rent expense 264 298 EBITDAR $1,318 $2,816 Adjusted debt to EBITDAR 4.92 2.33 (a) Lease obligations presented under US GAAP are replaced with eight times cash rent for operating leases, finance leases, and financial obligations.
We measure the change in digital sales by including 21 Table of Contents all sales initiated online or through mobile applications, including omnichannel transactions which are fulfilled through our stores.
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. 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.
Net cash used in Investing activities increased $433 million to $570 million in 2021. The increase was driven by in-store investments related to Sephora buildouts, refreshes, and other customer experience and sales driving enhancements; our new e-commerce fulfillment center that opened in 2021.
Our investing cash inflows are generally from proceeds from sales of property and equipment. Net cash used in investing activities increased $213 million to $783 million in 2022. The increase was primarily driven by in-store investments related to Sephora shop-in-shop build-outs, store refreshes, and other customer experience and sales driving enhancements.
Key strategic focus areas for the Company include: driving top line growth, delivering a 7% to 8% operating margin, maintaining disciplined capital management, and sustaining an agile, accountable, and inclusive culture. 20 Table of Contents Driving Top Line Growth Our initiatives include building a sizable beauty business with Sephora, driving continued growth in our active and outdoor business, reigniting growth in the women’s business, enhancing our brand portfolio, opening new stores, leading with loyalty and value, and further growing digital.
Key strategic focus areas for the Company include: driving top line growth, delivering a long-term operating margin of 7% to 8%, maintaining disciplined capital management, and sustaining an agile, accountable, and inclusive culture.
Management's Discussion and Analysis of Financial Condition and Results of Operations in Part II of our 2020 Form 10-K . Net Sales Net sales includes revenue from the sale of merchandise, net of expected returns, and shipping revenue.
Results of Operations For our comparison and discussion of 2021 and 2020, see Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations in Part II of our 2021 Form 10-K .
See the key financial ratio calculations below for our Adjusted ROI calculation. 30 Table of Contents Capital Structure Ratio The following table shows our capital structure ratio (a non-GAAP financial measure): 2021 2020 Adjusted debt to adjusted EBITDAR 2.33 7.70 The decrease in our Adjusted debt to adjusted EBITDAR ratio is primarily due to higher operating income.
Capital Structure Ratio The following table shows our capital structure ratio (a non-GAAP financial measure): 2022 2021 Adjusted debt to EBITDAR 4.92 2.33 Adjusted debt to EBITDAR is a non-GAAP financial measure which we define as our adjusted outstanding debt balance divided by EBITDAR. The increase in our adjusted debt to EBITDAR ratio is primarily due to lower operating income.
The dividend is payable March 30, 2022 to shareholders of record at the close of business on March 16, 2022.
The dividend will be paid on March 29, 2023 to all shareholders of record at the close of business on March 15, 2023.
We sell prestige beauty products through Sephora-branded retail shop-in-shops in certain Kohl’s stores and through a Sephora-branded offering on Kohls.com. We opened 200 shop-in shops in 2021 and are planning to open another 400 stores in 2022 and 250 in 2023.
Sephora Arrangement In 2020, we entered into an arrangement with Sephora to be the exclusive beauty offering at Kohl's and bring a transformational, elevated beauty experience to Kohl’s. We sell prestige beauty products through Sephora-branded retail shop-in-shops in certain Kohl’s stores and through a Sephora-branded offering on Kohls.com.
In addition, when appropriate, we will complete liability management transactions, and look for profitable mergers and acquisitions opportunities. Our period-end cash and cash equivalents balance decreased to $1.6 billion from $2.3 billion in 2020. Our cash and cash equivalents balance includes short-term investments of $1.5 billion and $2.1 billion as of January 29, 2022, and January 30, 2021, respectively.
Our period-end cash and cash equivalents balance decreased to $153 million from $1.6 billion in 2021. Our cash and cash equivalents balance includes short-term investments of $10 million and $1.5 billion as of January 28, 2023, and January 29, 2022, respectively. Our investment policy is designed to preserve principal and liquidity of our short-term investments.
A calculation of cash rent can be found in Note 3 of the Consolidated Financial Statements 32 Table of Contents Contractual Obligations Material contractual obligations arising in the normal course of business primarily consist of long-term debt and related interest payments, principal and interest payments for leases, and other purchase obligations.
As of January 28, 2023, we were in compliance with all covenants and expect to remain in compliance during 2023. Contractual Obligations Material contractual obligations arising in the normal course of business primarily consist of long-term debt and related interest payments, principal and interest payments for leases, and other purchase obligations.
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.
Additionally, Moody's downgrade will increase the interest rate on these two notes an additional 50 bps in May 2023 due to the coupon adjustment provisions within these notes. If our credit ratings are lowered further, our ability to access the public debt markets, our cost of funds, and other terms for new debt issuances could be adversely impacted.
The increase was primarily driven by increases in store, marketing, distribution, and credit expenses as sales recovered and expenses normalized after our store closures last year due to COVID-19. Distribution costs, which exclude payroll related to online originated orders that were shipped from our stores, were $449 million for 2021 compared to $346 million for 2020.
Distribution costs, which exclude payroll related to online originated orders that were shipped from our stores, were $457 million for 2022 compared to $449 million for 2021.
In 2022, we anticipate capital expenditures of approximately $850 million to support the expansion our Sephora shop-in-shops, new stores and improvements to existing stores, and technology investment. We will continue to invest in a differentiated omni-channel experience to modernize the store experience, continue digital growth, and further enhance our omni-channel capabilities.
In 2023, we anticipate capital expenditures of approximately $600 to $650 million to support the Sephora shop-in-shops and store refresh activity. We will continue to invest in enhancing our omni-channel capabilities. Financing Activities Our financing strategy is to ensure liquidity and access to capital markets.
Both parties to the arrangement are active participants and are exposed to significant risks and rewards dependent on the success of the activities of the arrangement. The arrangement involves various activities including the merchandising, marketing, and operations of the shops and Kohls.com.
We have opened 606 full size shop-in shops to date and are planning to open at least 250 full size and 50 small format Sephora shop-in-shops in 2023. Both parties to the arrangement are active participants and are exposed to significant risks and rewards dependent on the success of the activities of the arrangement.
Income Taxes (Dollars in Millions) 2021 2020 2019 Provision (benefit) for income taxes $281 $(383) $210 Effective tax rate 23.1% 70.2% 23.3% Our effective tax rate in 2021 is less than the effective tax rate in 2020 primarily due to the 2020 rate including the benefit for the net operating loss carryback provision from the CARES Act enacted on March 27, 2020.
Income Taxes (Dollars in Millions) 2022 2021 2020 (Benefit) provision for income taxes $(39) $281 $(383) Effective tax rate 68.1% 23.1% 70.2% The effective tax rate for 2022 was higher than the effective tax rate for 2021 because of the impact of favorable results from uncertain tax positions as well as federal tax credits relative to consolidated book net income (loss).
As of January 29, 2022, our credit ratings and outlook were as follows: Moody’s Standard & Poor’s Fitch Long-term debt Baa2 BBB- BBB- Outlook Stable Stable Stable Free Cash Flow We generated $1.6 billion of free cash flow for 2021 compared to $908 million in 2020.
Free Cash Flow We had negative free cash flow of $639 million for 2022 compared to $1.6 billion free cash flow generated in 2021.
Net interest expense decreased in 2021 compared to 2020 due to the benefit of debt reductions as a result of our liability management strategies employed during 2021 and because no amounts were outstanding during 2021 on the revolving credit facility. Offsetting this decrease was an increase in interest expense related to more financing leases.
Net interest expense increased in 2022 compared to 2021 due to more financing leases as well as borrowings under the revolving credit facility. This was partially offset by less interest expense in the first quarter of 2022 due to the debt reductions in 2021.
Operating activities generated cash of $2.3 billion in 2021 compared to $1.3 billion in 2020.
Operating activities generated cash of $282 million in 2022 compared to $2.3 billion in 2021. Operating cash flow decreased primarily due to lower net income and a decrease in accounts payable due to late arriving receipts in 2021.
Partially offsetting this was increased inventory purchases in 2021 due to reduced inventory receipts in 2020 in response to COVID-19. 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.
Additionally in 2021 we received a tax refund related to the net loss we incurred in 2020 and the carryback provision under the Coronavirus Aid, Relief, and Economic Security ("CARES") Act. 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.
Digital penetration represented 32% of net sales in 2021. • Men's, Footwear, Women's, and Accessories outperformed the Company average. • Active outperformed the Company average increasing more than 40% to 2020. Active represented 24% of sales in 2021.
The impact of a higher average ticket was offset by lower units per transaction. • Digital sales decreased 7% for the year. Digital penetration represented 32% of net sales in 2022. • Men's, Women's, and Accessories, which includes Sephora, outperformed the Company average.
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Key financial results for 2021 included: • Record earnings of $6.32 per diluted share on a GAAP basis and $7.33 per diluted share on an adjusted non-GAAP basis* • Strong financial position, ending the year with $1.6 billion in cash • Repurchased $1.4 billion of shares • Net sales increased 22.9% to last year • Gross margin was 38.1% of net sales, a 700 basis point increase from last year • SG&A increased 9.1% and leveraged as a percent of total revenue by 328 basis points to last year • Achieved a 8.6% operating margin *Please see the “GAAP to Non-GAAP Reconciliation” for a reconciliation of earnings per diluted share to adjusted earnings per diluted share.
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Key financial results for 2022 as compared to 2021 include: • Net sales decreased 7.1%, to $17.2 billion, with comparable sales down 6.6%. • Gross margin as a percent of net sales was 33.2%, a decrease of 485 basis points. • SG&A expenses increased 2.0%, to $5.6 billion.
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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.
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As a percentage of total revenue, SG&A expense was 30.9%, an increase of 268 basis points. • Operating income was $246 million compared to $1.7 billion in the prior year. As a percentage of total revenue, operating income was 1.4%, a decrease of 729 basis points. • Net loss of $19 million, or ($0.15) per diluted share.
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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. In 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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This compares to net income of $938 million, or $6.32 per diluted share, and adjusted net income of $1.1 billion, or $7.33 per diluted share, in the prior year. • Operating cash flow was $282 million. Our Strategy Kohl's strategy is focused on delivering long-term shareholder value through driving improved sales and profitability.
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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 2019 to provide additional context. • Net sales decreased 2.2% with digital sales increasing 30%. • Gross margin as a percent of net sales increased 237 basis points driven by strong inventory management and our pricing and promotion optimization strategies, partially offset by higher freight costs. • SG&A decreased 4.0% and leveraged as a percent of total revenue by 37 basis points driven by marketing and technology efficiencies.
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In the context of these strategic focus areas, the Company outlined the following priorities for 2023: enhancing the customer experience, accelerating and simplifying its value strategies, managing inventory and expenses with discipline, and strengthening the balance sheet.
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Our Vision and Strategy The Company’s vision is to be “the most trusted retailer of choice for the active and casual lifestyle” and its strategy is focused on delivering long-term shareholder value.
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Financial and Capital Outlook For fiscal year 2023, the Company currently expects the following: • Net sales: A decrease (2%) to (4%), including the impact of the 53rd week which is worth approximately 1%. • Operating margin: Approximately 4.0%. • Diluted earnings per share: In the range of $2.10 to $2.70, excluding any non-recurring charges. • Capital expenditures: $600 million to $650 million, including the expansion of the Sephora arrangement and store refresh activity.
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We have already taken significant steps in many of these areas, such as successfully launching our strategic partnership with Sephora in 2021 by opening the first 200 shop-in-shops and offering a comprehensive digital experience, driving strong sales growth of more than 40% in our active and outdoor business, and introducing new brands including Tommy Hilfiger, Calvin Klein, and Eddie Bauer.
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The decrease in 2022 was driven by a decrease in credit revenue due to lower overall accounts receivable balances and a normalizing loss rate. On March 14, 2022, we amended and restated our private label credit card program agreement with Capital One. The agreement ends on March 31, 2030.
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Delivering a 7% to 8% Operating Margin The Company is committed to delivering an operating margin of 7% to 8%. Our gross margin initiatives include disciplined inventory management and increased inventory turn, efficient sourcing, and optimized pricing and promotion strategies.
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The agreement will operate in substantially the same manner as it currently operates, and with planned modernization of technology and processes.
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Our initiatives to drive selling, general, and administrative expense efficiency are focused on labor productivity, across our stores and fulfillment centers, marketing, and technology expenses. Maintaining Disciplined Capital Management We are committed to prudent balance sheet management with the long-term objective of sustaining Kohl’s Investment Grade credit rating.
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The decrease in gross margin was driven by increased permanent markdowns taken to address inventory levels, elevated freight, and headwinds from product cost inflation and higher shrink. 22 Table of Contents We expect gross margin to stabilize in 2023 and to be in the 36.0% to 36.5% range.
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The Company has a long history of strong cash flow generation, investing in the business, and returning significant capital to shareholders—all of which will remain important in the future. Sustaining an Agile, Accountable, and Inclusive Culture Fostering a diverse, equitable, and inclusive environment for Kohl’s associates, customers, and suppliers is an important focus of ours.
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We expect the promotional environment to remain competitive, but expect progressive benefits as freight and product cost inflation moderate in the second half of the year.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeQuantitative and Quali tative Disclosures About Market Risk Our operating results are subject to interest rate risk as the $600 million of notes issued in April 2020, $113 million of which remain outstanding, and 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.
Biggest changeQuantitative and Quali tative Disclosures about Market Risk Our operating results are subject to interest rate risk as the $600 million of notes issued in April 2020, $113 million of which remain outstanding, and 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., both of which occurred in 2022.
The reduced profitability, if any, will be impacted by various factors, including our ability to pass higher funding costs on to the credit card holders and the outstanding receivable balance, and cannot be reasonably estimated at this time. 35 Table of Contents
The reduced profitability, if any, will be impacted by various factors, including our ability to pass higher funding costs on to the credit card holders and the outstanding receivable balance, and cannot be reasonably estimated at this time. 34 Table of Contents
All other long-term debt is at fixed interest rates and, therefore, is not affected by changes in interest rates. When our long-term debt instruments mature, we may refinance them at the existing market interest rates, which may be more or less than interest rates on the maturing debt.
All other long-term debt is at fixed interest rates and, therefore, is not 33 Table of Contents affected by changes in interest rates. When our long-term debt instruments mature, we may refinance them at the existing market interest rates, which may be more or less than interest rates on the maturing debt.

Other KSS 10-K year-over-year comparisons