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What changed in KOHLS Corp's 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of KOHLS Corp's 2023 and 2024 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 2024 report.

+195 added−196 removedSource: 10-K (2024-03-21) vs 10-K (2023-03-16)

Top changes in KOHLS Corp's 2024 10-K

195 paragraphs added · 196 removed · 137 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeWe 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.
Biggest changeA third-party purchasing agent sources approximately 15% of the merchandise we sell. No vendor individually accounted for more than 10% of our net purchases in 2023. 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.
W 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.
We 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.
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.
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.
Our Kohl's stores generally carry a consistent merchandise assortment with some differences attributable to local preferences, store size, and Sephora. Our website includes merchandise which is available in our stores, as well as merchandise that is available only online. Our merchandise mix includes both national brands and private brands that are available only at Kohl's.
Our Kohl's stores generally carry a consistent merchandise assortment with some differences attributable to local preferences, store size, and Sephora at Kohl's shop-in-shops ("Sephora shops"). Our website includes merchandise which is available in our stores, as well as merchandise that is available only online. Our merchandise mix includes both national brands and private brands that are available only at Kohl's.
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
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.
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.
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 Reports (under “ESG” sub-caption) 6 Table of Contents The information contained on our website is not part of this Annual Report on Form 10-K.
A small amount of our merchandise is delivered directly to the stores by vendors or their distributors. The retail distribution centers, which are strategically located throughout the United States, ship merchandise to each store by contract carrier several times a week.
A small amount of our merchandise is delivered directly to the stores by vendors or their distributors. The retail distribution centers, which are strategically located throughout the United States, ship merchandise to each store by contract carrier.
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.
The following fiscal periods are presented in this report: Fiscal Year Ended Number of Weeks 2023 February 3, 2024 53 2022 January 28, 2023 52 2021 January 29, 2022 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.
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.
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 February 3, 2024, we operated 1,174 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.
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.
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.
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.
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, we strive to create a welcoming and inclusive culture of care.
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.
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.
This team provides tools, resources, and best practices to ensure we have the right talent in the right roles at the right time. We invest in executive coaching, assessments, internal programs, external courses, peer networks, and more. From initial onboarding to high potential leadership development, we believe in training and career growth for our associates.
Our talent management team brings together performance management, talent assessment, succession planning, and career planning. This team provides tools, resources, and best practices to ensure we have the right talent in the right roles at the right time. We invest in executive coaching, assessments, internal programs, external courses, peer networks, and more.
The number of associates varies during the year, peaking during the back-to-school and holiday seasons. None of our associates are represented by a collective bargaining unit. We believe we maintain positive relations with our associates.
Employee Count During 2023, we employed an average of approximately 96,000 associates, which included approximately 36,000 full-time and 60,000 part-time associates. The number of associates varies during the year, peaking during the back-to-school and holiday seasons. None of our associates are represented by a collective bargaining unit. We believe we maintain positive relationships with our associates.
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.
We are focused on growing leaders by engaging talent in internal and external professional development offerings and we are working to develop inclusive leaders through programs aimed at building awareness and encouraging advocacy.
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.
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. 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.
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.
In the space of continuous development and engagement, we have eight Business Resource Groups with members focused on championing and enhancing diversity and inclusion efforts across our business. 4 Table of Contents At Kohl's, we believe our leaders are responsible 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.
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.
Our primary competitors are online retailers, off-price retailers, warehouse clubs, mass merchandisers, specialty stores, traditional department stores, 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. All suppliers must meet certain requirements to do business with us.
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 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.
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.
This strategy accelerates how we are embedding DEI throughout our business by being intentional about our programs and practices and holding ourselves accountable to the work. 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.
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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.
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We believe our associates are our most valuable asset and a differentiator for our business. Our teams of associates take care of each other, our customers and the communities we serve.
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The work is rooted in our Core Beliefs: • We believe embedding diversity, equity, and inclusion in everything we do requires an ongoing journey of listening, learning, and taking action. • We believe that human and civil rights, anti-racism, and our commitment to nondiscrimination in any form are critical to upholding our core values, ethical practices, and Code of Ethics. • We believe we can create lasting change by addressing inequities to positively affect our people, customers, and community. • We believe we are accountable for inspiring empathy, creating an environment of belonging, and identifying and addressing bias.
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We support our associates by fostering a safe and healthy work environment, offering competitive total compensation and benefits, including many health and wellness offerings, providing ongoing training and development opportunities, and cultivating an inclusive culture where all associates feel a sense of belonging and appreciation.
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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.
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Our DEI strategy is embedded into our acquisition and retention practices for all associates. We strive to celebrate our differences and help more customers see themselves reflected in our brands.
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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.
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Compensation and Benefits We are committed to providing competitive and fair compensation and benefits programs to our associates and offer a range of benefits that are meaningful to our associates' everyday lives, with a commitment to supporting all aspects of associates' well-being.
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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.
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Part-time associates are offered a primary care health and pharmacy plan, dental, vision, supplementary life insurance, and a merchandise discount. Kohl's also offers adoption and surrogacy reimbursement options. Kohl's has Wellness Centers available to associates at corporate and credit locations, distribution centers, and e-commerce fulfillment centers, as well as for near-site store and remote associates within the vicinity.
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The BRG’s are also positioned to provide key development and growth opportunities for associates to build their cache of skills and connections while bringing their authentic selves to their work and the organization.
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Kohl's fosters associates' total well-being, which includes a number of benefits that focus on mental well-being and health, including the Employee Assistance Program, counseling coverage, mental well-being activities, webinars, business resource groups, support groups, and leader resources. We empower our associates’ work-life balance by giving them access to a full range of professional resources.
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The BRGs serve as champions for enhancing our diversity and inclusion efforts across our business and make an impact across the organization with a focus on our three diversity and inclusion pillars.
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An education benefit was introduced in 2022, which provides fully-funded tuition, books, and fees for associates pursuing high school completion, select certificates, and undergraduate degrees. Training and Development Behind our success are great teams of talented individuals who embody our values. We are committed to attracting, growing, and engaging talent, while giving associates equitable opportunities for career growth.
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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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From initial onboarding to high potential leadership development, we believe in training and career growth for our associates. We encourage our associates to keep their skills fresh through different mediums ranging from live workshops to on-demand skills training available through our online library of courses.
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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.
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We also provide training to teams that provide skills and mindsets to help them perform at their highest level. Additionally, our development teams throughout the company provide job-specific training to ensure associates have the tools they need to excel in their jobs and serve our customers.
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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.
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We are committed to the highest integrity standards and maintain a Code of Ethics to guide ethical decision-making for associates. As a company of integrity, we expect our associates to be honest and accountable. Our ethics training, which we require all associates to take annually, is refreshed yearly to ensure topics covered are relevant and impactful.
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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.
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The training helps connect ethics to an associate's day-to-day job responsibilities and promotes honesty, integrity, and fairness. 5 Table of Contents Competition The retail industry is highly competitive. Management considers product and value 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.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeThe 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.
Biggest changeThe impact of, and actions taken in response to COVID-19, had a significant impact on the retail industry generally and our business. Future pandemics could have a material adverse effect on our business, financial condition, and results of operations. Our competitors could make changes to their pricing and other practices. The retail industry is highly competitive.
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.
For example, we publish an annual 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.
Our ability to compete may also suffer if Kohl’s, our suppliers, or our third-party shipping and delivery vendors are unable to effectively and efficiently fulfill and deliver orders, especially during the holiday season when sales volumes are especially high. Consequently, our results of operations could be adversely affected.
In addition, our ability to compete may also suffer if Kohl’s, our suppliers, or our third-party shipping and delivery vendors are unable to effectively and efficiently fulfill and deliver orders, especially during the holiday season when sales volumes are especially high. Consequently, our results of operations could be adversely affected.
We may be unable to source merchandise in a timely and cost-effective manner. A third-party purchasing agent sources approximately 20% of the merchandise we sell. The remaining merchandise is sourced from a wide variety of domestic and international vendors.
We may be unable to source merchandise in a timely and cost-effective manner. A third-party purchasing agent sources approximately 15% of the merchandise we sell. The remaining merchandise is sourced from a wide variety of domestic and international vendors.
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.
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.
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.
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, trade and climate, and other ESG-related policies and regulations could change or be implemented and adversely affect our business and results of operations.
Frequent or unusually heavy snow, ice, or rain storms; natural disasters such as earthquakes, tornadoes, floods, fires, and hurricanes; or extended periods of unseasonable temperatures could adversely affect our performance by affecting consumer shopping patterns and diminishing demand for seasonal merchandise.
Frequent or unusually heavy snow, ice, or rain storms; natural disasters such as earthquakes, tornadoes, floods, fires, and hurricanes; or extended periods of unseasonable temperatures or droughts could adversely affect our supply chain or our performance by affecting consumer shopping patterns and diminishing demand for seasonal merchandise.
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.
The private label and co-branded 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.
Changes in credit card operations could adversely affect our sales, revenues, and/or profitability. Our credit card operations facilitate merchandise sales and generate additional revenue from fees related to extending credit.
Changes in credit card operations and payment-related risks could adversely affect our sales, revenues, and/or profitability. Our credit card operations facilitate merchandise sales and generate additional revenue from fees related to extending credit.
In 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.
In January 2023, we upsized and replaced 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 or restrict our access to these potential sources of future liquidity.
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.
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.
If too many customers access our website within a short period of time, we may experience system interruptions that make our website unavailable or prevent us from efficiently fulfilling orders, which may reduce the volume of goods we sell and the attractiveness of our products and services.
If too many customers access our website within a short period of time, particularly during peak selling periods, we may experience system interruptions that make our website unavailable or prevent us from efficiently fulfilling orders, which may reduce the volume of goods we sell and the attractiveness of our products and services.
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.
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.
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.
Political or financial instability, trade restrictions, tariffs, currency exchange rates, transport capacity and costs, pandemic outbreaks, work stoppages, port strikes, port congestion and delays, information technology challenges, and other factors relating to foreign trade are beyond our control and have impacted or could continue to adversely 8 Table of Contents impact our performance and cause us to pay more to obtain inventory or result in having the wrong inventory at the wrong time.
Consumer spending habits, including spending for the merchandise that we sell, are affected by many factors including prevailing economic conditions, levels of employment, salaries and wage rates, prevailing interest rates, housing costs, energy and fuel costs, income tax rates and policies, consumer confidence, consumer perception of economic conditions, and the consumer’s disposable income, credit availability, and debt levels.
Consumer spending habits, including spending for the merchandise that we sell, are affected by many factors including prevailing economic conditions, inflation and measures to control inflation, consumer responses to recessionary concerns, levels of employment, salaries and wage rates, prevailing interest rates, housing costs, energy and fuel costs, income tax rates and policies, consumer confidence, consumer perception of economic conditions, and the consumer’s disposable income, credit availability, and debt levels.
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.
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 associated with our own operations or where merchandise is produced; perceptions of our diversity, equity, and inclusion efforts; perceptions of our pricing and return policies; litigation; vendor violations of our Terms of Engagement; perceptions of the national vendors and/or other third parties with which we partner; failure, or perceived failure, to realize our ESG goals on a timely basis or at all; perceptions of our management of ESG risks and opportunities; our performance on various ESG ratings; 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.
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 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.
We may incur significant costs in connection with the implementation, ongoing use, or discontinuation of technology projects, or fail to successfully implement these technology initiatives, or achieve the anticipated efficiencies from such projects, any of which could adversely affect our operations, liquidity, and financial condition. Weather conditions and natural disasters could adversely affect consumer shopping patterns and disrupt our operations.
We may incur significant costs in connection with the implementation, ongoing use, or discontinuation of technology projects, or fail to successfully implement these technology initiatives, or achieve the anticipated efficiencies from such projects, any of which could adversely affect our operations, liquidity, and financial condition.
This type of reputational damage may result in a reduction in sales, operating results, and shareholder value. There may be concerns about the safety of products that we sell.
This type of reputational damage may result in deterioration in our relationships with stakeholders and/or a reduction in sales, operating results, and shareholder value. There may be concerns about the safety of products that we sell.
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.
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.
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.
We may be unable to successfully execute an omnichannel strategy. 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.
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.
Various aspects of our operations are subject to federal, state, or local laws, rules, and regulations, including consumer 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.
We may be unable to attract, develop, and retain quality associates while controlling costs, which could adversely affect our operating results. Our performance is dependent on attracting and retaining a large number of quality associates, including our senior management team and other key associates. Many associates are in entry-level or part-time positions with historically high rates of turnover.
We may be unable to attract, develop, and retain quality associates while controlling costs, which could adversely affect our operating results. Our performance is dependent on attracting and retaining a large number of quality associates, including our senior management team and other key associates.
Our ability to meet our labor needs while controlling costs is subject to external factors such as government benefits, unemployment levels and labor participation rates, prevailing wage rates, minimum wage legislation, actions by our competitors in compensation levels, potential labor organizing efforts, and changing demographics. Competitive and regulatory pressures have already significantly increased our labor costs.
Our ability to meet our labor needs while controlling costs is subject to external factors such as government benefits, unemployment levels and labor participation rates, prevailing wage rates, minimum wage legislation, actions by our competitors in compensation levels, perceptions of our employee experience, potential labor organizing efforts, and 12 Table of Contents changing demographics.
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).
Our business is apparel, footwear, accessories, beauty, and home products. Both our business and our supply chain are 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).
Further changes that adversely impact our ability to attract and retain quality associates could adversely affect our performance and/or profitability.
Competitive and regulatory pressures have already significantly increased our labor costs. Further changes that adversely impact our ability to attract and retain quality associates could adversely affect our performance and/or profitability.
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.
Underestimating customer demand, or failing to timely receive merchandise to meet demand, can lead to inventory shortages and missed sales opportunities, as well as negative customer experiences. 11 Table of Contents We have and may continue to experience an increase in costs associated with shipping digital orders due to promotional shipping offers, split shipments, freight surcharges due to peak capacity constraints, and additional long-zone shipments necessary to ensure timely delivery for the holiday season.
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.
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.
Consumer confidence is also affected by the domestic and international political situation. The outbreak or escalation of war, or the occurrence of terrorist acts or other hostilities in or affecting the United States, could lead to a decrease in spending by consumers. Our competitors could make changes to their pricing and other practices. The retail industry is highly competitive.
Consumer confidence is also affected by the domestic and international political situation. The outbreak or escalation of war, or the occurrence of terrorist acts or other hostilities in or affecting the United States, could lead to a decrease in spending by consumers. Future pandemics could have a material adverse impact on our business, financial condition, and results of operations.
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.
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.
We compete for customers, associates, locations, merchandise, services, and other important aspects of our business with many other local, regional, and national retailers. Those competitors include traditional department stores, mass merchandisers, off-price retailers, specialty stores, internet businesses, and other forms of retail commerce. We consider style, quality, price, and convenience to be the most significant competitive factors in our industry.
Those competitors include online retailers, off-price retailers, warehouse clubs, mass merchandisers, specialty stores, traditional department stores, and other forms of retail commerce. 7 Table of Contents We consider product and value to be the most significant competitive factors in our industry.
At the same time, investor and other stakeholder expectations, and voluntary and regulatory ESG disclosure standards and policies continue to evolve.
At the same time, investor and other stakeholder expectations, and voluntary and regulatory ESG disclosure standards and policies, continue to evolve. We may be subject to investor or regulator engagement and/or litigation on our ESG initiatives and disclosures, even if such initiatives are currently voluntary.
In addition, these events could cause physical damage to our properties or impact our supply chain, making it difficult or impossible to timely deliver seasonally appropriate merchandise. Although we maintain crisis management and disaster response plans, our mitigation strategies may be inadequate to address such a major disruption event. We may be unable to successfully execute an omnichannel strategy.
In addition, these events could cause physical damage to our properties or impact our supply chain, making it difficult or impossible to timely deliver seasonally appropriate merchandise. Climate change may impact the frequency and/or intensity of such events, as well as contribute to various chronic changes in the physical environment.
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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.
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We compete for customers, associates, locations, merchandise, services, and other important aspects of our business with many other local, regional, and national retailers.
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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.
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We also expect there will likely be increasing levels of regulation, disclosure-related and otherwise, with respect to ESG matters. Increased regulation and increased stakeholder expectations will likely lead to increased costs as well as scrutiny that could heighten all of the ESG-related risks we are subject to.
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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.
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Additionally, many of our suppliers may be subject to similar regulations and expectations, which may exacerbate existing risks or create new ones, including risks that may not be known to us. Any of these developments may have a material adverse effect on our business and results of operations.
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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.
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Negative publicity surrounding us, our activities, or the products we offer, including consumer perception of our response to political and social issues, and campaigns by political activists promoting certain causes, could adversely impact our brand image and may decrease demand for our products, thereby adversely affecting our business, results of operations, cash flows or financial condition.
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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.
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In addition, certain laws and regulations impose import restrictions for goods, which may induce greater supply chain compliance costs and may result in delays to us or adversely impact our inventory. Where we are the importer of record, we may be subject to additional regulatory and other requirements.
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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.
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Further, we focus on ESG as a component of our strategy, and we have and may at times continue to engage in voluntary initiatives (such as voluntary disclosures, certifications, or goals, among others) to improve the ESG profile of our company and/or products.
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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.
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Such initiatives may be costly, even if realized, may not have the desired effect, and actions or statements that we may take based on expectations, assumptions, or third-party 9 Table of Contents information that we currently believe to be reasonable may subsequently be determined to be erroneous or be subject to misinterpretation.
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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.
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We also note that divergent views regarding ESG principles are emerging in the U.S., and in particular, in U.S. state-level regulation and enforcement efforts and among certain activist stakeholders.
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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.
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To the extent ESG matters negatively impact our brand and reputation, they may also impede our ability to compete as effectively to attract and retain employees or customers, which may adversely impact our operations, business, financial condition, results of operations, cash flow and prospects.
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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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In addition, we may not be able to adapt or adapt quickly enough to technological change, including that brought about by the use of artificial intelligence.
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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.
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If our competitors are more successful in adapting to such changes or otherwise incorporating such changes into their business or operations, this could have a material adverse impact on our business and results of operations. 10 Table of Contents Weather conditions and natural disasters could adversely affect consumer shopping patterns and disrupt our operations.
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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.
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Although we maintain crisis management and disaster response plans and may take various actions to mitigate our business risks associated with such events and climate change, our mitigation strategies may be inadequate to address such a major disruption event.
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We also depend on third parties as it relates to our information systems.
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Further, unseasonable weather conditions, including unusually warm weather in the fall or winter months or abnormally wet or cold weather in the spring or summer months, whether due to climate change or otherwise, could have a material adverse effect on our business, financial condition, and operating results, as consumer spending may be inconsistent with our typical inventory purchasing cycle.
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Underestimating customer demand, or failing to timely receive merchandise to meet demand, can lead to inventory shortages and missed sales opportunities, as well as negative customer experiences.
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We have taken steps to simplify our value strategy by eliminating online-only promotions in favor of omnichannel pricing across the enterprise. This pressured our digital performance in 2023. While we believe this approach aligns with our long-term strategy, our efforts may not produce the intended results.
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Similarly, as we refine our value strategy to be less promotional, our efforts may negatively impact the loyalty of certain customers and our efforts to mitigate this impact may not be successful.
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On March 5, 2024, the Consumer Financial Protection Bureau ("CFPB") finalized a rule lowering the safe harbor dollar amount credit card companies can charge for late fees for a missed payment.
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The rule reduces the typical amount of late fees that can be charged, which could have a negative impact on Kohl’s credit card revenues, particularly if Kohl’s steps to mitigate the impact of such rule are not successful.
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We also accept payment from customers in a variety of ways, such as cash, checks, debit cards, gift cards, mobile payments, as well as other forms, which subject us to rules, regulations, contractual obligations, and other compliance requirements such as those related to payment network rules and operating guidelines, as well as potential fraud, which may have an adverse impact on our operating results.
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While we have succession plans for our senior management team, they may not be adequate to replace members of our senior management, including our Chief Executive Officer, or may not be successfully executed. Many associates are in entry-level or part-time positions with historically high rates of turnover.
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During the first quarter of 2023, S&P downgraded our senior unsecured credit rating from BB+ to BB and Moody's downgraded our rating from Ba2 to Ba3. These downgrades have caused our cost of borrowing to increase, and further downgrades would cause our cost of borrowing to further increase.
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The actions taken to address other specific risks may affect how well we manage the more general risk of capital efficiency.

Item 2. Properties

Properties — owned and leased real estate

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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.
Biggest changeThe following tables summarize key information about our Kohl's stores as of February 3, 2024: Number of Stores by State Mid-Atlantic Region: Northeast Region: South Central Region: Delaware 5 Connecticut 20 Arkansas 8 Maryland 23 Maine 5 Kansas 12 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 89 Rhode Island 4 Vermont 2 Total Mid-Atlantic 118 Total Northeast 156 Total South Central 154 Midwest Region: Southeast Region: West Region: Illinois 66 Alabama 14 Alaska 1 Indiana 42 Florida 50 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 4 North Dakota 4 South Carolina 17 Nevada 13 Ohio 59 Tennessee 20 New Mexico 4 South Dakota 4 Oregon 11 Wisconsin 42 Utah 12 Washington 21 Wyoming 2 Total Midwest 317 Total Southeast 188 Total West 241 Location Ownership Strip centers 951 Owned 406 Freestanding 161 Leased 521 Community & regional malls 62 Ground leased 247 16 Table of Contents 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 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.
Item 2. Pr operties Stores As of February 3, 2024, we operated 1,174 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.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeItem 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.
Biggest changeItem 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 4. Mine Saf ety Disclosures Not applicable.

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 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.
Biggest changeThe 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 February 3, 2024: (Dollars in Millions, Except per Share Data) Total Number of Shares Purchased Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Approximate Dollar Value of Shares That May Yet Be Purchased under the Plans or Programs October 29 - November 25, 2023 2,444 $22.54 — $2,476 November 26 – December 30, 2023 47,766 25.53 — 2,476 December 31, 2023 - February 3, 2024 69,227 26.32 — 2,476 Total 119,437 $25.93 —
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.
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 20, 2024, there were approximately 3,200 record holders of our Common Stock.
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.
Performance Graph The graph below compares our cumulative five-year shareholder return to that of the Standard & Poor’s (“S&P”) 500 Index and the S&P 500 Consumer Discretionary Distribution & Retail Index, formerly known as the S&P 500 Retailing Index.
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. There is no fixed termination date for the repurchase program, and the program may be suspended, discontinued, or accelerated at any time.
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.
The S&P 500 Consumer Discretionary Distribution & Retail Index was calculated by S&P Global, a Standard & Poor’s business and includes the same companies within the S&P Consumer Discretionary Distribution & Retail Index. The S&P 500 Consumer Discretionary Distribution & Retail Index is weighted by the market capitalization of each component company at the beginning of each period.
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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 graph assumes an investment of $100 on February 2, 2019 and reinvestment of dividends.
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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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The calculations exclude trading commissions and taxes. 19 Table of Contents Company / Index Feb 2, 2019 Feb 1, 2020 Jan 30, 2021 Jan 29, 2022 Jan 28, 2023 Feb 3, 2024 Kohl’s Corporation $100.00 $67.42 $72.06 $100.18 $55.41 $50.62 S&P 500 Index 100.00 121.56 142.53 172.46 161.03 199.42 S&P 500 Consumer Discretionary Distribution & Retail Index 100.00 120.61 170.52 180.58 149.54 210.02 Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities We did not sell any equity securities in fiscal year 2023 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 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.
Biggest changeGAAP to Non-GAAP Reconciliation (Dollars in Millions, Except per Share Data) Operating Income Income (loss) before Income Taxes Net Income (loss) Earnings (loss) per Diluted Share 2023 GAAP $717 $373 $317 $2.85 Loss on extinguishment of debt — — — — Income tax impact of items noted above — — — — Adjusted (non-GAAP) (1) $717 $373 $317 $2.85 2022 GAAP $246 $(58) $(19) $(0.15) Loss on extinguishment of debt — — — — 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 Income tax impact of items noted above — — (50) (0.34) Adjusted (non-GAAP) $1,680 $1,420 $1,089 $7.33 (1) Amounts shown for 2023 and 2022 are GAAP as there are no adjustments to Non-GAAP.
Free cash flow is a non-GAAP financial measure which we define as net cash provided by operating activities and proceeds from financing obligations (which generally represent landlord reimbursements of construction costs) less capital expenditures and finance lease and financing obligation payments.
Adjusted free cash flow is a non-GAAP financial measure which we define as net cash provided by operating activities and proceeds from financing obligations (which generally represent landlord reimbursements of construction costs) less capital expenditures and finance lease and financing obligation payments.
Our Kohl's stores generally carry a consistent merchandise assortment with some differences attributable to local preferences, store size, and Sephora. Our website includes merchandise which is available in our stores, as well as merchandise that is available only online.
Our Kohl's stores generally carry a consistent merchandise assortment with some differences attributable to local preferences, store size, and Sephora shops. Our website includes merchandise which is available in our stores, as well as merchandise that is available only online.
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.
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; third we will complete debt reduction transactions, when appropriate; and fourth we return excess cash to shareholders through our share repurchase program.
Please see the “GAAP to Non-GAAP Reconciliation” for a reconciliation of free cash flow to net cash provided by operating activities.
Please see the “GAAP to Non-GAAP Reconciliation” for a reconciliation of adjusted free cash flow to net cash provided by operating activities.
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.
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.
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.
See Notes 2 and 3 to the Consolidated Financial Statements for amounts outstanding on February 3, 2024 related to debt and leases. Other purchase obligations primarily include royalties, legally binding minimum lease and interest payments for stores opening in 2024 or later, as well as payments associated with technology, marketing, and donation agreements.
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.
Comparable sales and digital penetration measures vary across the retail industry. As a result, our comparable sales calculation and digital penetration may not be consistent with the similarly titled measures reported by other companies. The following graph summarizes net sales dollars and the change in comparable sales over the prior year.
Impairment of Long-Lived Assets We review our long-lived assets for impairment when events or changes in circumstances, such as decisions to close a store or significant cash flow losses, indicate the carrying value of the asset may not be recoverable. All long-lived assets are reviewed for impairment at least annually.
Impairment of Long-Lived Assets We review our long-lived assets for impairment when events or changes in circumstances, such as decisions to close a store or significant cash flow losses, indicate the carrying value of the asset may not be recoverable.
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.
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 • Debt reduction • Share repurchases • 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) 2023 2022 2021 Cash and cash equivalents $183 $153 $1,587 Net cash provided by (used in): Operating activities $1,168 $282 $2,271 Investing activities (562) (783) (570) Financing activities (576) (933) (2,385) Adjusted free cash flow (a) $519 $(639) $1,556 (a) Non-GAAP financial measure.
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.
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 1,174 stores and a website (www.Kohls.com) as of February 3, 2024. Our Kohl's stores and website sell moderately-priced private and national brand apparel, footwear, accessories, beauty, and home products.
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.
Each of the credit rating agencies reviews its rating periodically and there is no guarantee our current credit ratings will remain the same. 28 Table of Contents The majority of our financing activities generally include proceeds and/or repayments of long-term debt, dividend payments, and in 2022 and 2021 repurchases of common stock.
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.
The obligations were $540 million as of February 3, 2024. Off-Balance Sheet Arrangements We have not provided any financial guarantees as of year-end fiscal 2023. 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 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.
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 increased 347 basis points in 2023 compared to 2022.
These amounts are shown for comparability purposes. 24 Table of Contents We believe the adjusted results in the GAAP to Non-GAAP table 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.
These amounts are shown for comparability purposes. We believe the adjusted results in the GAAP to Non-GAAP table 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. However, these non-GAAP financial measures are not intended to replace the comparable GAAP measures.
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.
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.
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.
As of February 3, 2024, we were in compliance with all covenants. 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.
Leases Accounting for leased properties requires compliance with technical accounting rules and significant judgment by management. 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.
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.
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.
We are closely monitoring developments on this ruling, specifically as it relates to the timing of implementation. 23 Table of Contents 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.
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.
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.
Critical Accounting Policies and Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and assumptions that affect reported amounts. Management has discussed the development, selection, and disclosure of these estimates and assumptions with the Audit Committee of our Board of Directors.
Critical Accounting Policies and Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and assumptions that affect reported amounts.
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.
Capital Structure Ratio The following table shows our capital structure ratio (non-GAAP financial measure): 2023 2022 Adjusted debt to EBITDAR 3.63 4.92 Adjusted debt to EBITDAR is a non-GAAP financial measure which we define as our adjusted outstanding debt balance divided by EBITDAR.
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.
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.
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.
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.
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.
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.
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.
Adjusted 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.
Shrink is the difference between the recorded amount of inventory and the physical inventory. We perform an annual physical inventory count at the majority of our stores, E-Commerce fulfillment centers, and distribution centers.
Inventory shrinkage is estimated as a percent of sales for the period between the last physical inventory count and the balance sheet date. Shrink is the difference between the recorded amount of inventory and the physical inventory. We perform an annual physical inventory count at the majority of our stores, E-Commerce fulfillment centers, and distribution centers.
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.
We believe that adjusted 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 adjusted free cash flow (a non-GAAP measure): (Dollars in Millions) 2023 2022 2021 Net cash provided by operating activities $1,168 $282 $2,271 Acquisition of property and equipment (577) (826) (605) Free cash flow $591 $(544) $1,666 Finance lease and financing obligation payments $(93) $(106) $(125) Proceeds from financing obligations 21 11 15 Adjusted free cash flow $519 $(639) $1,556 Key Financial Ratios Key financial ratios that provide certain measures of our liquidity are as follows: (Dollars in Millions) 2023 2022 Working capital $798 $621 Current ratio 1.31 1.20 Our working capital and inventory levels typically build throughout the fall, peaking during the November and December holiday selling season.
Outstanding borrowings under the credit facility bear interest at a variable rate based on SOFR plus the applicable margin. Borrowings under the revolving credit facility, recorded as short-term debt, has $85 million outstanding as of January 28, 2023, and approximately $1.4 billion 27 Table of Contents remains available under the revolver.
Outstanding borrowings under the credit facility bear interest at a variable rate based on SOFR plus the applicable margin. Borrowings under the revolving credit facility, recorded as short-term debt, had $92 million outstanding as of February 3, 2024, and had $85 million as of January 28, 2023.
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. 30 Table of Contents Debt Covenant Compliance Our senior secured, asset based revolving credit facility contains customary events of default and financial, affirmative and negative covenants, including but not limited to, a springing financial covenant relating to our fixed charge coverage ratio and restrictions on indebtedness, liens, investments, asset dispositions, and restricted payments.
Debt Covenant Compliance Our senior secured, asset based revolving credit facility contains customary events of default and financial, affirmative and negative covenants, including but not limited to, a springing financial covenant relating to our fixed charge coverage ratio and restrictions on indebtedness, liens, investments, asset dispositions, and restricted payments.
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.
Fair market value is used in determining whether the lease is accounted for as an operating lease or a finance lease.
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.
Other Expenses (Dollars in Millions) 2023 2022 2021 Depreciation and amortization $749 $808 $838 Interest expense, net 344 304 260 Loss on extinguishment of debt — — 201 Depreciation and amortization decreased in 2023, primarily driven by reduced capital spending in technology.
As of January 28, 2023, our credit ratings and outlook were as follows: Moody’s Standard & Poor’s Fitch Long-term debt Ba2 BB+ BBB- Outlook Stable Stable Stable As a result of Standard & Poor's downgrade, the interest rate on our 3.375% notes and 9.50% notes increased 25 bps due to the coupon adjustment provisions within these notes.
As of February 3, 2024, our credit ratings and outlook were as follows: Moody’s S&P Fitch Long-term debt Ba3 BB BBB- Outlook Negative Negative Negative As a result of the downgrades, the interest rate on our 3.375% notes due May 2031 and 9.50% notes due May 2025 increased 50 basis points in May 2023 due to the coupon adjustment provisions within these notes.
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.
As a percentage of total revenue, SG&A expense was 31.5%, an increase of 67 basis points. • Operating income was $717 million compared to $246 million in the prior year. As a percentage of total revenue, operating income was 4.1%, an increase of 274 basis points. • Net income of $317 million, or $2.85 per diluted share.
Projected cash flows must be estimated for future periods throughout the remaining life of the property, which may be as many as 40 years in the future. The accuracy of these estimates will be impacted by a number of factors including general economic conditions, changes in competitive landscape, and our ability to effectively manage the operations of the store.
The accuracy of these estimates will be impacted by a number of factors including general economic conditions, changes in competitive landscape, and our ability to effectively manage the operations of the store.
Financing cash outflows also include payments to our landlords for leases classified as financing leases and financing obligations. Financing activities used $933 million in 2022 compared to $2.4 billion in 2021. The decrease is driven by a reduction of treasury stock purchases in 2022 compared to 2021 as well as debt reduction activities in 2021 as discussed below.
Financing cash outflows also include payments to our landlords for leases classified as financing leases and financing obligations. Financing activities used $576 million in 2023 compared to $933 million in 2022. The decrease is driven by no treasury stock purchases occurring in 2023 partially offset by repayment of long-term borrowings.
If our evaluations, which are performed on an undiscounted cash flow basis, indicate that the carrying amount of the asset may not be recoverable, the potential impairment is measured as the excess of carrying value over the fair value of the impaired asset. Identifying impaired assets and quantifying the related impairment loss, if any, requires significant estimates by management.
All long-lived assets are reviewed for impairment at least annually. 32 Table of Contents If our evaluations, which are performed on an undiscounted cash flow basis, indicate that the carrying amount of the asset may not be recoverable, the potential impairment is measured as the excess of carrying value over the fair value of the impaired asset.
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.
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. There can be no assurances that such factors will not impact our business in the future.
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.
We provide our adjusted debt to EBITDAR ratio to our ratings agencies and our current goal is to achieve a ratio of 2.5 which 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.
We measure both the change in these variable expenses and the expense as a percent of revenue. If the expense as a percent of revenue decreased from the prior year, the expense "leveraged". If the expense as a percent of revenue increased over the prior year, the expense "deleveraged".
We measure our expenses as a percentage of revenue and changes in this percentage compared to the prior year. If the expense as a percent of revenue decreased from the prior year, the expense "leveraged".
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.
If the expense as a percent of revenue increased over the prior year, the expense "deleveraged". 24 Table of Contents The following graph summarizes the changes in SG&A by expense type between 2022 and 2023: SG&A decreased $75 million, or 1.3%, to $5.5 billion in 2023. As a percentage of revenue, SG&A deleveraged by (67) basis points.
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.
Our adjusted debt to EBITDAR calculation may not be comparable to similarly-titled measures reported by other companies. 30 Table of Contents The following table includes our adjusted debt to EBITDAR calculation: (Dollars in Millions) 2023 2022 Finance lease and financing obligations $2,763 $2,880 Borrowings under revolving credit facility 92 85 Long-term debt 1,638 1,912 Total debt $4,493 $4,877 Operating leases 2,883 2,689 Total debt (including operating leases) $7,376 $7,566 Less: Operating lease, finance lease, and financing obligation liabilities (a) (5,646) (5,569) Add: Cash-based lease equivalent debt (a) 4,584 4,488 Adjusted debt $6,314 $6,485 Net income (loss) $317 $(19) Provision (benefit) for income taxes 56 (39) Interest expense, net 344 304 Depreciation and amortization 749 808 Rent expense 271 264 EBITDAR (b) $1,737 $1,318 Adjusted debt to EBITDAR 3.63 4.92 (a) Lease obligations presented under US GAAP are replaced with eight times cash rent for operating leases, finance leases, and financial obligations.
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.
Digital penetration represented 29% of net sales in 2023. 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.
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.
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. This markdown support generally relates to sold inventory or permanent markdowns and, accordingly, is reflected as a reduction to cost of merchandise sold.
RIM is an averaging method that has been widely used in the retail industry due to its practicality. The use of RIM will result in inventory being valued at the lower of cost or market since permanent markdowns are taken as a reduction of the retail value of inventories.
The use of RIM will result in inventory being valued at the lower of cost or market since permanent markdowns are taken as a reduction of the retail value of inventories. A reserve is recorded if the future estimated selling price is less than cost.
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.
Liquidity and Capital Resources Capital Allocation Our capital allocation strategy is to invest to maximize our overall long-term return and maintain a strong balance sheet, with a long-term objective of achieving an investment grade rating.
This policy allows investments in large money market funds or in highly rated direct short-term instruments. We also place dollar limits on our investments in individual funds or instruments.
We also place dollar limits on our investments in individual funds or instruments.
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.
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.
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.
A summary of cash rent can be found in Note 3 of the Consolidated Financial Statements. Management believes this normalizes for timing within the lease term and the impact of lease amendments triggered by our investment in the Sephora shops.
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.
In 2024, we anticipate capital expenditures of approximately $500 million, including the expansion of Sephora shops, the launch of Babies "R" Us, and the expansion of queuing lines to 350 stores. We will continue to invest in enhancing our omnichannel capabilities. Financing Activities Our financing strategy is to ensure adequate liquidity and access to capital markets.
A reserve is recorded if the future estimated selling price is less than cost. RIM inherently requires management judgment and estimates, such as the amount and timing of permanent markdowns to clear unproductive or slow-moving inventory, which may impact the ending inventory valuation as well as gross margin.
RIM inherently requires management judgment and estimates, such as the amount and timing of permanent markdowns to clear unproductive or slow-moving inventory, which may impact the ending inventory valuation as well as gross margin. Factors considered in the determination of permanent markdowns include current and anticipated demand, customer preferences, age of the merchandise, fashion trends, and weather conditions.
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.
As our stores were closed for a period during 2020, we have not included a measure of 2021 comparable sales as we do not believe it is a meaningful metric over this period of time. 2023 compared to 2022 Net sales decreased $575 million, or (3.4%), to $16.6 billion for 2023. • The decrease was driven by transaction volume down approximately 4% partially offset by an approximately 1% increase in average transaction value. 22 Table of Contents • The sales decrease was seen across all lines of business except for Accessories, as they underperformed the Company average.
The most significant of these estimates is the cash flow expected to result from the use and eventual disposition of the asset. When determining the stream of projected future cash flows associated with an individual store, management estimates future store performance including sales, gross margin, and controllable expenses, such as store payroll and occupancy expense.
When determining the stream of projected future cash flows associated with an individual store, management estimates future store performance including sales, gross margin, and controllable expenses, such as store payroll and occupancy expense. Projected cash flows must be estimated for future periods throughout the remaining life of the property, which may be as many as 40 years in the future.
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.
This compares to net loss of $19 million, or ($0.15) per diluted share, in the prior year. • Inventory was $2.9 billion, a decrease of 10% to last year, driven by managing receipts down 9% versus last year. • Operating cash flow was $1.2 billion. Our Strategy Kohl's strategy is focused on delivering long-term shareholder value.
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.
Our cash and cash equivalents balance includes short-term investments of $15 million and $10 million as of February 3, 2024, and January 28, 2023, respectively. Our investment policy is designed to preserve principal and liquidity of our short-term investments. This policy allows investments in large money market funds or in highly rated direct short-term instruments.
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.
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. RIM is an averaging method that has been widely used in the retail industry due to its practicality.
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.
To achieve this, the Company has established four overarching priorities to drive improved sales and profitability. These priorities include enhancing the customer experience, accelerating and simplifying its value strategies, managing inventory and expenses with discipline, and strengthening the balance sheet.
In 2021, we completed a cash tender offer and recognized a loss of $201 million from the extinguishment of debt.
Net interest expense increased in 2023 compared to 2022 due to borrowings under the revolving credit facility as well as Sephora related lease amendments. In 2021, we completed a cash tender offer and recognized a loss of $201 million from the extinguishment of debt.
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.
Leases are further described in Note 3 of the Consolidated Financial Statements. 33 Table of Contents 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.
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.
Financial and Capital Outlook For fiscal year 2024, the Company currently expects the following: • Net sales: A decrease of (1%) to an increase of 1% • Comparable sales: In the range of 0% to 2% • Operating margin: In the range of 3.6% to 4.1% • Diluted EPS: In the range of $2.10 to $2.70, excluding any non-recurring charges. • Capital Expenditures: Approximately $500 million, including expansion of Sephora arrangement and other store-related investments The Company’s guidance includes the potential impact from credit card late fee regulatory changes in the second half of 2024. 21 Table of Contents Results of Operations For our comparison and discussion of 2022 and 2021, see Item 7.
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.
Operating activities generated cash of $1.2 billion in 2023 compared to $282 million in 2022. Operating cash flow increased primarily due to higher net income and strong inventory management in 2023. Inventory management resulted in managing receipts, down 9% versus last year.
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.
Adjusted debt to EBITDAR is a liquidity measure and not a measure of financial performance under GAAP and should be considered in addition to, and not as a substitute for debt or other GAAP financial measures of liquidity.
The decrease is primarily due to less operating cash flow due to a net loss as well as increased capital expenditures to support the investments related to Sephora shop-in-shop build-outs, store refreshes, and other customer experience and sales driving enhancements.
The increase is primarily driven by more cash provided by operating activities due to a higher net income and a reduction in inventory purchases of 9%, and a decrease in capital expenditures related to less Sephora shop build-outs and store refreshes in 2023.
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.
The decrease was primarily driven by decreased marketing investments across all channels and decreased distribution costs due to lower receipts and increased productivity. Distribution costs, which exclude payroll related to online originated orders that were shipped from our stores, were $406 million for 2023 compared to $457 million for 2022. Partially offsetting the decreases were increased store costs.
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.
Cash dividend payments were $220 million ($2.00 per share) in 2023 and $239 million ($2.00 per share) in 2022. Adjusted Free Cash Flow We generated $519 million of adjusted free cash flow for 2023 compared to a negative adjusted free cash flow of $639 million in 2022.
We will continue to invest in the business, as we plan to invest $600 to $650 million in 2023, including the expansion of the Sephora arrangement and store refresh activity, and we remain committed to the dividend. On February 21, 2023, our Board of Directors of Kohl's Corporation declared a quarterly cash dividend of $0.50 per share.
We remain committed to the dividend, and on February 28, 2024, our Board of Directors declared a quarterly cash dividend of $0.50 per share. The dividend will be paid on April 3, 2024 to all shareholders of record at the close of business on March 20, 2024.
We retired the $164 million of notes due in February 2023, and plan on retiring the $111 million of notes due December 2023 when they mature. We are not planning any share repurchases until our balance sheet is strengthened on a path towards the long term target leverage ratio of 2.5 times.
The timing and amount of repurchases are based upon available cash balances, our stock price, and other factors. As previously noted, we are not planning any share repurchases until our balance sheet is strengthened on a path towards the long term target leverage ratio of 2.5 times adjusted EBITDAR (utilizing an eight times cash rent calculation for lease obligations).
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 .
Management's Discussion and Analysis of Financial Condition and Results of Operations in Part II of our 2022 Form 10-K . 53 rd Week The retail calendar for fiscal January 2023 included a fifth week, resulting in a 14-week fiscal fourth quarter and a 53-week year.
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.
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.
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.
Key financial results for 2023 as compared to 2022 include: • Net sales decreased 3.4%, to $16.6 billion. 2023 net sales included approximately $164 million from the 53rd week. • Comparable sales, which compares the 52-week period ending January 27, 2024 versus the 52-week period ended January 28, 2023, decreased 4.7%. • Gross margin as a percent of net sales was 36.7%, an increase of 347 basis points. • Selling, general & administration ("SG&A") expenses decreased 1.3%, to $5.5 billion.
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).
Income Taxes (Dollars in Millions) 2023 2022 2021 Provision (benefit) for income taxes $56 $(39) $281 Effective tax rate 15.1% 68.1% 23.1% 25 Table of Contents Fiscal year 2023 resulted in an income tax provision compared to an income tax benefit in fiscal year 2022 due to the pre-tax book income in fiscal year 2023 compared to the pre-tax book loss in 2022.
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.
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. Net cash used in investing activities decreased $221 million to $562 million in 2023.
The following chart summarizes capital expenditures by major category: In 2022, we opened 406 full size Sephora-branded retail shop-in-shops and now have a total of 606 full size Sephora shop-in-shops open. In 2023, we are planning to open at least 250 full size and 50 small format Sephora 26 Table of Contents shop-in-shops.
The decrease was primarily driven by fewer rollouts of Sephora shop build-outs and store refreshes undertaken in 2023, consistent with our capital expenditure plans for fiscal 2023. 27 Table of Contents The following chart summarizes capital expenditures by major category: In 2023, we opened 254 full size Sephora shops and 45 small format shops.
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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.
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Our comparable sales in 2023 exclude the impact of the 53rd week and compare the 52 weeks ended January 27, 2024 to the 52 weeks ended January 28, 2023. Net Sales Net sales includes revenue from the sale of merchandise, net of expected returns and deferrals due to future performance obligations, and shipping revenue.
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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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Partially offsetting this decrease was a 23% increase in Accessories driven by over a 90% increase in Sephora compared to the prior year. Sephora sales exceeded $1.4 billion in 2023.
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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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(Dollars in Millions) 2023 2022 Change Women's $4,281 $4,654 (8.0%) Men's 3,455 3,679 (6.1%) Accessories (including Sephora) 2,813 2,279 23.4% Home 2,533 2,791 (9.2%) Children's 2,060 2,176 (5.3%) Footwear 1,444 1,582 (8.7%) Net Sales $16,586 $17,161 (3.4%) • Digital sales decreased 14% for the year as sales were impacted by the elimination of online-only promotions as we worked to simplify our value 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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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeThe 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
Biggest changeAs a result, our share of profits from the credit card portfolio may be negatively impacted by increases in interest rates. 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.
Quantitative 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.
Quantitative 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 and 2023.
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.
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.
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As a result, our share of profits from the credit card portfolio may be negatively impacted by increases in interest rates.
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We are also subject to interest rate risk from changes in the interest rates under our $1.5 billion revolving credit facility. Outstanding borrowings under the credit facility bear interest at a variable rate based on SOFR plus the applicable margin. Outstanding borrowings under the revolving credit facility, recorded as short-term debt, were $92 million as of February 3, 2024.
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Additionally, the CFPB finalized a rule in March 2024 which will lower the safe harbor dollar amount credit card companies can charge for late fees for a late payment. The rule will have a negative impact on our credit card revenues if our steps to mitigate the impact of such rule are not successful. 34 Table of Contents

Other KSS 10-K year-over-year comparisons