Analysis of Financial Condition and Results of Operations

Name: Analysis of Financial Condition and Results of Operations
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Author: Benjamin Fisher

Evaluates financial health and operational outcomes of an entity.

Benjamin Fisher

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Analysis of Financial Condition and Results of Operations
Evaluate Kohl's financial performance for the years 2011-2013 by analyzing the key factors
influencing its net sales, gross margin, and SG&A expenses. In your analysis, consider the
company's strategic initiatives, including new brand launches, beauty department
renovations, loyalty programs, and omni-channel efforts. How did these initiatives affect
their financial results, and what are the implications for their future financial outlook for
2014?
Word Count Requirement: 1,000 - 1,200 words

The following table summarizes Kohl’s recent financial results:
2013 2012 2011
Net sales $19,031 $19,279 $18,804
Change in:
Net sales 1.3% 2.5% 2.2 %
Comparable sales 1.2% 0.3% 0.5 %
Gross margin 36.5% 36.3% 38.2%
Selling,general
And
Administrative
expenses $4,313 $4,267 $4,243
Net income $889 $986 $1,167
Net income per
diluted share $4.05 $4.17 $4.30
Treasury
stock purchases $799 $1,259 $2,331
Cash flow
From operations $1,884 $1,265 $2,139
Kohls main business objective is to profitably increase sales. In order to increase sales, Kohls
must continue to increase transactions per store, which is its primary sales driver. To ensure this,
Kohl’s have a number of initiatives which we at JC Penny believe will increase transactions per
store.
Primarily, Kohls will have to continue to improve the quality of its merchandise and to continue
to offer items at great values.
Kohls must continue to focus on creating excitement for its customer base in order to improve
traffic to its stores and website.
In fiscal 2014, Kohls expect to launch several new brands, including Juicy Couture, IZOD, and a
Jumping Beans collection featuring Disney characters. The Juicy Couture assortment will
include women's and girl's apparel, footwear, accessories, bedding, and home accessories. The
IZOD assortment will be one of the largest men's launches in Kohls history and will feature
men's sportswear and dress apparel, including golf separates, woven sport shirts, sweaters, knit

shirts, shorts, suit separates, dress shirts, and dress pants. The Jumping Beans collection will
combine Disney, one of the most recognizable brands in the world, and Kohls own highly-
successful Jumping Beans brand. Kohls will also launch the next DesigNation designer, our
limited-time special collection.
Approximately 280 of Kohls stores had renovated beauty departments by the end of fiscal 2013.
Kohls expect to renovate the beauty department in approximately another 200 stores in 2014.
They are currently testing three different beauty renovations - new fixtures with expanded and/or
relocated floor space, new fixtures with no change to department size or location, and existing
fixtures with acrylic retrofits. Initial test results are showing a significant increase in beauty sales
in the renovated stores.
Kohls is also in the process of designing a rewards system to increase customer loyalty,
especially for customers who don’t have a Kohls-branded credit card. This program will allow
enrolled customer to earn various rewards or discounts based upon the volume of their
purchases. The loyalty program is currently available in approximately 30% of its stores. Initial
results have been very positive. Kohls expect this loyalty program to be available in all of its
stores by the end of fiscal year 2014.
Kohls is also making significant investments to create an exciting omni-channel shopping
experience for its customers. Whether customers are shopping in one of its stores, from their
phones or from their laptops, Kohls will be creating a consistent experience to ensure that their
customers can connect with one of many Kohl’s customer services representatives wherever and
however they wish.
Kohls seemed to have remained committed to meeting the changing shopping needs of the
customer, from strengthening its omni-channel experience to investing in the future in a strategic
and profitable manner.
2014 Outlook
The current expectations for fiscal 2014 compared to 2013 including estimated impacts of these
initiatives are as follows:
Total sales: Increase 0.5 - 2.5%
Comparable sales: Increase 0 - 2%
Gross margin as a percent of sales: Increase 10 - 30 bps
SG&A: Increase 1.5 - 2.5%
Earnings per diluted share: $4.05 - $4.45

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Analysis of Financial Condition and Results of Operations

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