Kohl’s Financial Analysis
Kohl’s Corporation Financial Analysis American retailer Kohl’s has become a prevalent fixture for the purchase of discounted clothing and home goods in the mid-west for over twenty-five years. The history of the company however has roots much more modest than present day market dominance would suggest. Dating back to a Wisconsin supermarket in 1946, founder Max Kohl grew his small business to the most successful chain of supermarkets in the Milwaukee area (12).
By 1962 Kohl opened his first department store in Brookfield, Wisconsin where an eclectic selection of merchandise, from sporting goods, motor oil and candy, was sold (11).In 1972, the Kohl’s Company which by then consisted of 50 grocery stores, six department stores, three drug stores and three liquor stores, sold 80 percent of its interests to the American subsidiary of British American Tobacco (BAT), p. l. c. , BATUS, Inc.
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The Kohl’s family ended participation in the operations of the company after soon after the sale (11). BATUS, like many other tobacco companies began looking to diversify its holdings by acquiring department stores in the 1960’s.By the mid-1980’s BATUS held 19th place for largest retail holdings in the US with assets including Gamble’s, Saks Fifth Avenue and Marshall Field & Co. (11). In 1983 BATUS, Inc.
dropped its interest in the Kohl’s Food Stores to Atlantic and Pacific Tea Company (12). In 1986 a group of private investors purchased the 40 Kohl’s department stores and formed Kohl’s Corporation. It was during that period of private ownership that the Kohl’s management team began to develop the Kohl’s sales model that is still in use today (11).The primary focus for the Kohl’s management was to define themselves as an affordable family- oriented retailer that was an amalgamation of a traditional department store feel but with a lower cost price structure of a discount store. It was also during that time that the company tightened its product line and dropped less profitable items like candy and sewing notions, replacing them with higher profit margin goods like jewelry and linens (11).
The innovative business model proved successful and two years after the forming Kohl’s Corporation, 26 Main Street Stores were purchased from Federated Department Stores (12).That brought Kohl’s total stores owned to 66 and allowed them to enter new markets in Michigan, Minnesota and Chicago (11). In 1992 in order to fund continued expansion of the corporation including a goal of 14-16 additional stores per year, an initial public offering of 11. 1 million shares was offered on the public market (12). From there Kohl’s expansion was exponential over the years, branching out throughout the Midwest, Mid-Atlantic and North-East. By the end of 1992 it had 120 stores and by the end of 1995 had opened 73 additional stores (11).
Kohl’s began its expansion into the west in 1999, primarily concentrating on Texas, Missouri and Colorado. To support the westward expansion, a 542,000-square foot distribution center was opened in 2000 to service six central US states (11). Also during this time, 33 Caldor Corporation stores were purchased in New York and Boston through an offering of 2. 8 million shares of stock. (11) From Kohl’s emergence as a public company in 1992-1999, the company more than tripled its numbers of stores while quadrupling its profits (11). In the summer of 2001 the company launched its e-commerce site Kohls.
com. 6) and despite a weakening economy after the terrorist attacks in September 2001, Kohl’s continued its vigorous expansion in to new markets throughout the US. In 2002 the first stores were opened in Nashville, Tennessee, New Hampshire and Rhode Island adding to the overall total of 457 Kohl’s stores. The 2003 expansion into California made Kohl’s a bona fide coast-to-coast retail entity (11). It was during that time of aggressive growth that Kohl’s acquired exclusive contracts with name brand labels and celebrity endorsements such as the successful juniors line Candies, and a Daisy Fuentes line of clothing and accessories.
4) The marketing plan of Kohl’s exclusive brands as well as a mix of exclusive celebrity endorsed labels in both homewares and clothing proved to be so successful that the company continues to introduce new and updated celebrity endorsed product lines to present day. By 2011, Kohl’s corporation reported 1097 stores and a net income of 1. 1 million dollars. (12) Since its first public offering, Kohl’s Corporation has shown steady growth and strong profits and much of that is a result of exclusive and private brands, ability to embrace technological changes and carefully adjusting its business model to changing customer expectations.The launching of Kohls.
com in 2001 has resulted in steady sales growth in the e-commerce portion of the company. To support the internet sales, a 940,000 square foot distribution center was opened in 2001 and a second one was opened in 2010. As internet sales continued to increase to more than 50% of its previous years sales, a third distribution plant has been acquired in Edgewood, Maryland (16). The new facility is 602,000 square feet but Kohl’s plans to expand the building to more than 1 million square feet by 2012. 15). This would indicate that Kohl’s intends to continue expanding the e-commerce portion of the corporation and is making all necessary preparations to support the growth.
In March of 2011, Kohl’s also announced its plans to remodel 100 stores, an 18 percent increase from 2010 (18) leading to speculation that Kohl’s may be trying to position itself to change its image away from a discount department store and more like a traditional department store such as Macy’s (7).Continuing the practice of private brands and celebrity endorsed labels to entice consumers, Kohl’s announced that in the fall of 2011 it would be launching two new fashion collections with celebrity spouses Mark Anthony and Jennifer Lopez. This will mark the first time that celebrity couple has joined to design collections for the retailer. The Lopez line will consist of clothing, accessories, shoes and sleepwear, while the Anthony line will contain sportswear, neckwear, sports coats and other apparel (8).The company has also recently announced the renewal of its contract with designer Vera Wang with plans to branch out from apparel and accessories into a skin care and cosmetics line (9). In early April 2011 Kohl’s department Stores announced a partnership with Chase Card Services that would benefit Chase credit and debit card holders with rewards and special discounts for using their cards at Kohl’s stores and on Kohls.
com. (5). This agreement was reached after Kohl’s severed its partnership with Chase and signed a deal allowing Capitol One to manage its credit sales.It is believed that Kohl’s switch from Chase to Capitol One was due to Capitol One’s ability to offer a larger cut of the credit sales to Kohl’s, but that a late hour deal was made by Chase so they didn’t lose their link with the profitable Kohl’s altogether. (3) Historically Kohl’s has been a consistent, strong company showing aggressive growth and solid profits even through difficult periods in the US economy. Examination of the company’s current balance sheet seems to indicate that Kohl’s Department Stores are continuing to do well.
Kohl’s total assets climbed from $1. billion in January, 2009 to 1. 3 billion in January, 2010. Their current ratio calculated from data reported in January 2009 is 2. 02.
The current ratio from the following year, 2010, increased to 2. 67. A strong current ratio is considered anything over 1. 5, so both years ratios look very favorable for the company as it has a considerable amount of liquid assets. Additionally encouraging is the considerable increase of .
65 in one year. Regarding Kohl’s liabilities, things are also looking well. January 2009 numbers report a debt ratio of 41% and in January 2010 the ratio dropped to 40%.This is excellent news for Kohl’s for two reasons. As a low debt ratio is favorable for businesses, when the percentage drops from one year to the next that is a positive sign of improving financial position.
Second, a safe debt ratio is considered to be anything below 60 %, so Kohl’s appears to be doing very well in managing its debt when examining these numbers. Inventory and more specifically how quickly a company can sell their inventory is crucial to the financial well-being of the business. Inventory that is held too long may decline in demand and may become obsolete.Also inventory held cannot make a profit for a business until it is sold, and the longer the inventory is held, the less profitable it is. The inventory turnover ratio assists in examining this issue. The January 2009 inventory turnover ratio is 3.
69 whereas the January 2010 ratio is 3. 65 times per year. A higher turnover rate for this ratio is desirable, so the decrease between the two years would be looked at unfavorably. There is a second ratio to examine inventory sales and that in the days’ sales in inventory ratio. This ratio indicates how long it takes to turn inventory into sales.Typically the shorter/lower the DSI, the better it is for a company’s financial position.
In January 2009, the days’ sales in inventory was 98. 9, whereas the January 2010 DIS ratio increased to 100. Ultimately, all examinations of financial documents are for the determination of a company’s strength and weaknesses and the best measure of that is the profitability of the company. The gross profit margin is an excellent measure of profitability. If the ratio increases it indicates an increase in income, whereas a decrease indicates the opposite.In January 2009, the gross profit margin was 37% and in January 2010 the margin increased to 38% indicating profits increased between 2009 and 2010.
An additional ratio to measure overall profitability is the net profit ratio. In January 2009 the ratio was 5. 40 and made a favorable increase to 5. 77 indicating that Kohl’s financial position was continuing to improve. Ratios for accounts receivable can also be used to examine a company’s financial position however Kohl’s sold its credit card accounts to JPMorgan Chase & Co.
As Kohl’s no longer owns its receivables it is no longer possible to use ratios such as accounts receivable turnover, days’ sales in AR and the acid test ratio to analyze Kohl’s financial statements. Overall Kohl’s financial position seems very strong. The corporation continues to pull on its long trusted business model of family-oriented specialty department stores while updating its private lines and celebrity partnerships to maintain relevance with consumers. Historically the corporation has been aggressive in its growth which has placed Kohl’s stores every state in the US other than Hawaii.Kohl’s financial statements indicate strong liquidity and increases annual profits.
While the inventory turnover numbers could be better, it does not seem to be hurting the bottom line. Net profits are steadily increasing and with the introduction of new partnerships with Chase Card Services and new celebrity lines with Vera Wang and Celebrity couple Jennifer Lopez and Mark Anthony, Kohl’s is positioned to continue showing positive numbers into 2011. Works Cited (1)Ashley, Mark. “Kohl’s pushing west, emphasizes quality. ” The Milwaukee Journal 07 Apr. 1981: 2-11.
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