KSS Kohls Corporation

Kohl's Corporation (NYSE:KSS): -- First Quarter Net Income Increase of 21.0% and EPS of $0.36 per Diluted Share -- Company Began Expensing of Stock Options in First Quarter of Fiscal 2005 Kohl's Corporation today reported results for the three months ended April 30, 2005. First Quarter Results Kohl's Corporation reported a 21.0 percent increase in net income for the quarter ended April 30, 2005. Net income was $124.7 million, or $0.36 per diluted share, compared with $103.1 million or $0.30 per diluted share a year ago. Both periods reflect the Company's decision to early adopt expensing of stock options and the correction of the method used to account for leases. Net sales for the quarter increased to $2.7 billion from $2.4 billion a year ago, an increase of 15.2 percent. Comparable store sales increased 3.7 percent for the same period. Larry Montgomery, Kohl's Chairman and Chief Executive Officer, said, "I am pleased with our performance in the first quarter on both the top and bottom line. We achieved both our targeted comparable store sales growth and net income growth for the quarter. Looking forward, we are targeting comparable store sales growth to be in the mid-single digit range for the remainder of the year. We continue to target earnings growth of approximately 20% over our restated 2004 results and expect our earnings per diluted share for fiscal 2005 to be in the $2.40 - $2.50 range." Montgomery added, "I appreciate the role that our associates played in helping the Company achieve a successful quarter. It is because of their hard work and dedication to serving our customers that you can 'expect great things' from Kohl's." Accounting for Stock-Based Compensation Separately, Kohl's Corporation decided to early adopt, in the first quarter of 2005, Statement of Financial Accounting Standards (SFAS) No. 123R, which modifies SFAS No. 123, "Accounting for Stock-Based Compensation." This revised accounting standard requires that all stock-based compensation, including grants of employee stock options, be accounted for using a fair-value-based method. The Company has elected to use the modified retrospective method which requires restatement of prior years' results. The prior period financial statements will be restated under the provisions of SFAS 123R to recognize compensation cost in the amounts previously reported in the pro forma footnote disclosures. The restatements for each of the fiscal 2004 quarters will be included in Kohl's 2005 quarterly filings on Forms 10-Q. The restated income statements are also attached to today's quarterly earnings release. Expansion Update During the first quarter, the Company successfully opened 32 new stores, including its entry into the Buffalo, NY market with three stores; adding seven stores in the Southeast region; six stores in the Midwest region and four stores each in the Mid-Atlantic, Northeast, South Central and Southwest regions. The Company now operates 669 stores in 40 states, compared with 589 stores in 38 states at the same time last year. The Company will open one store in the Chicago, IL market in May and expects to open approximately 62 additional stores in the third fiscal quarter. In August, the Company will open four new stores. The remaining stores, including new entries into Orlando and Jacksonville, Florida will open in October. First Quarter Conference Call Investors will have the opportunity to listen to the conference call today at 5:00 PM (EDT) by dialing (847) 619-6368 ten minutes prior to the start of the call, over the Internet through the Company's website located at http://www.kohls.com (See "Company News") or through the Broadcast Network's vcall web site located at http://www.vcall.com. To listen to the call, please go to the web site at least fifteen minutes early to register, download and install any necessary audio software. For those who cannot listen to the live broadcast, a replay of the call will be available for 36 hours at (630) 652-3018, Pass Code: 11410364#. Sanford C. Bernstein & Co., LLC Conference Larry Montgomery, Kohl's Chairman and Chief Executive Officer, presents at the Sanford C. Bernstein & Co., LLC -- Twenty-First Annual Strategic Decisions Conference 2005 at The Waldorf Astoria, New York City, on June 1 at 8am (EDT). The presentation will be Webcast live over the Internet via the Company's Web site located at www.kohls.com (see "Investor Relations," "Calendar of Events," and scroll to June). For those who cannot listen to the live broadcast, a seven-day replay will be available shortly after the broadcast. To access the replay, simply visit the link above. Cautionary Statement Regarding Forward-Looking Information This press release contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, including guidance on the Company's targeted sales and earnings. Kohl's intends forward-looking terminology such as "believes," "expects," "may," "will," "should," "anticipates," "plans," or similar expressions to identify forward-looking statements. Such statements are subject to certain risks and uncertainties, which could cause Kohl's actual results to differ materially from those anticipated by the forward-looking statements. These risks and uncertainties include, but are not limited to those described on Exhibit 99.1 to Kohl's annual report on Form 10-K, which is expressly incorporated herein by reference, and other factors as may periodically be described in Kohl's filings with the SEC. -0- *T KOHL'S CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF INCOME (In Millions, except per share data) (Unaudited) 13 Weeks Ended --------------------------------------- % to May 1, % to April 30, Net 2004 Net 2005 Sales (Restated) Sales --------------------------------------- Net sales $2,742.8 $2,380.2 Cost of merchandise sold 1,759.6 64.2% 1,532.8 64.4% ----------- ---------- Gross margin 983.2 35.8% 847.4 35.6% Operating expenses: Selling, general and administrative 672.9 24.5% 580.6 24.4% Depreciation and amortization 80.0 2.9% 66.7 2.8% Preopening expenses 12.6 0.5% 19.4 0.8% ----------- ---------- Operating income 217.7 7.9% 180.7 7.6% Interest expense, net 17.2 0.6% 15.0 0.6% ----------- ---------- Income before income taxes 200.5 7.3% 165.7 7.0% Provision for income taxes 75.8 2.8% 62.6 2.7% ----------- ---------- Net income $124.7 4.5% $103.1 4.3% =========== ========== Basic net income per share $0.36 $0.30 Avg. number of shares 343.5 340.4 Diluted net income per share $0.36 $0.30 Avg. number of shares 345.9 343.9 Kohl's Corporation Condensed Consolidated Balance Sheets (In Thousands) (Unaudited) Subject to Reclassification May 1, April 30, 2004 2005 (Restated) ------------ ------------ Assets Current assets: Cash and cash equivalents $119,729 $99,810 Accounts receivable trade, net 1,309,303 1,113,928 Merchandise inventories 2,112,753 1,862,195 Deferred income taxes 3,322 30,612 Other current assets 106,060 100,379 ------------ ------------ Total current assets 3,651,167 3,206,924 Property and equipment, net 4,105,623 3,440,274 Favorable lease rights, net 221,775 233,326 Goodwill 9,338 9,338 Other assets 112,675 105,293 ------------ ------------ Total assets $8,100,578 $6,995,155 ============ ============ Liabilities and Shareholders' Equity Current liabilities: Accounts payable $686,743 $746,449 Accrued liabilities 477,720 352,872 Income taxes payable 55,961 40,351 Short-term debt 190,000 110,000 Current portion of long-term debt and capital leases 5,038 2,760 ------------ ------------ Total current liabilities 1,415,462 1,252,432 Long-term debt and capital leases 1,118,033 1,088,663 Deferred income taxes 226,428 168,341 Other long-term liabilities 161,490 139,853 Shareholders' equity 5,179,165 4,345,866 ------------ ------------ Total liabilities and shareholders' equity $8,100,578 $6,995,155 ============ ============ Kohl's Corporation Condensed Consolidated Statements of Cash Flows (In Thousands) (Unaudited) Subject to Reclassification 13 Weeks Ended ----------------------- May 1, April 30, 2004 2005 (Restated) ---------- ----------- Operating activities Net income $124,734 $103,084 Adjustments to reconcile net income to net cash (used in) provided by operating activities: Depreciation and amortization 80,189 66,833 Amortization of debt discount 53 53 Deferred income taxes 47,775 40,672 Share-based compensation 9,608 12,378 Excess tax benefits from share-based compensation (3,564) (4,968) Changes in operating assets and liabilities: Accounts receivable trade, net 80,329 36,229 Merchandise inventories (165,776) (255,205) Other current assets (58,766) (29,485) Accounts payable (17,912) 213,850 Accrued and other long-term liabilities (88,068) (82,995) Income taxes payable (117,657) (87,977) ---------- ----------- Net cash (used in) provided by operating activities (109,055) 12,469 Investing activities Acquisition of property and equipment and favorable lease rights (169,910) (167,873) Net sales of short-term investments 88,767 34,285 Other (6,655) (7,650) ---------- ----------- Net cash used in investing activities (87,798) (141,238) Financing activities Proceeds from short-term debt 175,000 50,000 Net borrowing under credit facilities 15,000 60,000 Repayments of convertible and other long-term debt, net (1,020) (10,819) Excess tax benefits from share-based compensation 3,564 4,968 Proceeds from issuances of common shares 7,321 11,682 ---------- ----------- Net cash provided by financing activities 199,865 115,831 ---------- ----------- Net increase (decrease) in cash and cash equivalents 3,012 (12,938) Cash and cash equivalents at beginning of period 116,717 112,748 ---------- ----------- Cash and cash equivalents at end of period $119,729 $99,810 ========== =========== Income Statement Fiscal Year Ended January 29, 2005 (Dollars in Thousands, Except Per Share) (Unaudited) Q1 Q2 --------------------- ----------------------- Reported - Restated - Reported - Restated - 1 2 1 2 --------- ---------- ---------- ----------- Statement of Operations Data: Net sales $2,380,173 $2,380,173 $2,497,858 $2,497,858 Cost of merchandise sold 1,532,736 1,532,736 1,587,809 1,587,809 ---------- ---------- ---------- ---------- Gross margin 847,437 847,437 910,049 910,049 Selling, general and administrative expenses 568,246 580,625 571,846 582,822 Depreciation and amortization 66,653 66,653 71,382 71,382 Preopening expenses 19,420 19,420 4,689 4,689 ---------- ---------- ---------- ---------- Operating income 193,118 180,739 262,132 251,156 Interest expense, net 15,004 15,004 14,983 14,983 ---------- ---------- ---------- ---------- Income before income taxes 178,114 165,735 247,149 236,173 Provision for income taxes 67,331 62,651 93,422 89,273 ---------- ---------- ---------- ---------- Net income $110,783 $103,084 $153,727 $146,900 Net income per share: Basic $0.33 $0.30 $0.45 $0.43 Diluted $0.32 $0.30 $0.45 $0.43 Number of shares: Basic 340,434 340,434 341,030 341,030 Diluted 343,858 343,858 344,195 344,195 1 - Reported information is from Kohl's 2004 10-K filing - Note 11 - Quarterly Financial Information. The reported information shown in the chart above is expanded income statement detail that reflects the restatement of 2004 financial information related to the correction of the Company's methods used to account for leases. 2 - Restated information includes the impact of the adoption of Statement of Financial Accounting Standards (SFAS) No. 123R and shows an increase in selling, general and administrative (S,G, & A) expenses of approximately $12.4 million, $11.0 million $10.2 million and $9.8 million in the 1st, 2nd, 3rd and 4th quarters, respectively. The impact on S,G, & A expenses for the 2004 fiscal year was approximately $43.4 million. Income Statement Fiscal Year Ended January 29, 2005 (Dollars in Thousands, Except Per Share) (Unaudited) Q3 Q4 ---------------------------------------------- Reported - Restated - Reported - Restated - 1 2 1 2 ---------- ---------- ---------- ---------- Statement of Operations Data: Net sales $2,743,882 $2,743,882 $4,078,706 $4,078,706 Cost of merchandise sold 1,758,331 1,758,331 2,708,116 2,708,116 ---------- ---------- ---------- ---------- Gross margin 985,551 985,551 1,370,590 1,370,590 Selling, general and administrative expenses 649,324 659,520 750,205 760,029 Depreciation and amortization 72,124 72,124 78,014 78,014 Preopening expenses 22,450 22,450 2,572 2,572 ---------- ---------- ---------- ---------- Operating income 241,653 231,457 539,799 529,975 Interest expense, net 15,071 15,071 17,394 17,394 ---------- ---------- ---------- ---------- Income before income taxes 226,582 216,386 522,405 512,581 Provision for income taxes 85,649 81,795 197,468 193,755 ---------- ---------- ---------- ---------- Net income $140,933 $134,591 $324,937 $318,826 Net income per share: Basic $0.41 $0.39 $0.95 $0.93 Diluted $0.41 $0.39 $0.94 $0.92 Number of shares: Basic 342,312 342,312 343,160 343,160 Diluted 344,896 344,896 345,678 345,678 1 - Reported information is from Kohl's 2004 10-K filing - Note 11 - Quarterly Financial Information. The reported information shown in the chart above is expanded income statement detail that reflects the restatement of 2004 financial information related to the correction of the Company's methods used to account for leases. 2 - Restated information includes the impact of the adoption of Statement of Financial Accounting Standards (SFAS) No. 123R and shows an increase in selling, general and administrative (S,G, & A) expenses of approximately $12.4 million, $11.0 million $10.2 million and $9.8 million in the 1st, 2nd, 3rd and 4th quarters, respectively. The impact on S,G, & A expenses for the 2004 fiscal year was approximately $43.4 million. Income Statement Fiscal Year Ended January 29, 2005 (Dollars in Thousands, Except Per Share) (Unaudited) Total ------------------------- Reported - Restated - 1 2 ------------ ----------- Statement of Operations Data: Net sales $11,700,619 $11,700,619 Cost of merchandise sold 7,586,992 7,586,992 ------------ ----------- Gross margin 4,113,627 4,113,627 Selling, general and administrative expenses 2,539,621 2,582,996 Depreciation and amortization 288,173 288,173 Preopening expenses 49,131 49,131 ------------ ----------- Operating income 1,236,702 1,193,327 Interest expense, net 62,452 62,452 ------------ ----------- Income before income taxes 1,174,250 1,130,875 Provision for income taxes 443,870 427,474 ------------ ----------- Net income $ 730,380 $ 703,401 Net income per share: Basic $2.14 $2.06 Diluted $2.12 $2.04 Number of shares: Basic 341,724 341,724 Diluted 344,773 344,773 1 - Reported information is from Kohl's 2004 10-K filing - Note 11 - Quarterly Financial Information. The reported information shown in the chart above is expanded income statement detail that reflects the restatement of 2004 financial information related to the correction of the Company's methods used to account for leases. 2 - Restated information includes the impact of the adoption of Statement of Financial Accounting Standards (SFAS) No. 123R and shows an increase in selling, general and administrative (S,G, & A) expenses of approximately $12.4 million, $11.0 million $10.2 million and $9.8 million in the 1st, 2nd, 3rd and 4th quarters, respectively. The impact on S,G, & A expenses for the 2004 fiscal year was approximately $43.4 million. *T