High expenses lead to bad year at Kohl's

In what Larry Montgomery, chairman and CEO, admitted was a "disappointment," Kohl's Corporation experienced a rare down year in 2003. The Midwestern retailer's net income fell 8.1 percent last year, to $591.2 million; and its operating income slipped 1.3 percent, to $1.3 billion.

Increases in expenses dampened Kohl's 2003 performance. The company experienced a 40-basis point rise in its selling, general, and administrative expenses as a percentage of net sales, to 20.3 percent. On a dollar basis, SG&A reached $2.1 billion, or 15 percent more than during the 2002 fiscal year.

These figures clouded over a nearly 13 percent pickup in net sales, which totaled $10.3 billion for 2003. As Montgomery noted, last year marked the 12th consecutive year in which Kohl's set a sales record. Simultaneously, however, same-store sales for the year fell 1.6 percent.

For the fourth quarter, net income dropped 11.5 percent, to $246.8 million; and operating income fell by nearly 8 percent, to $482.2 million. Sales grew by almost 12 percent, to nearly $3.6 billion.

Regarding the year to come, Montgomery said, "We are looking ahead to 2004, making improvements where necessary and continuing to focus on profitably increasing our comparable-store sales and increasing market share."

Kohl's plans to open about 95 stores in fiscal 2004, split evenly between entries into new markets and fill-ins for existing markets. Forty-seven of these units are slated to open in the first quarter, and 48 are on the board for the third quarter.

Kohl's Corporation

Qtr. 1/31/04 (x000) 2003 2002 % chg
Sales $3,561,900 $3,184,500 11.9
Operating income 482,200 523,800 -7.9
Net income 246,800 279,000 -11.5
Earnings per share 0.72 0.81 -11.1
Average gross margin 30.9% 33.0%
SG&A percentage 17.4% 16.6%
12 months 2003 2002 % chg
Sales 10,282,100 9,120,300 12.7
Operating income 1,303,700 1,321,100 -1.3
Net income 591,200 643,400 -8.1
Earnings per share 1.72 1.87 -8.0
Average gross margin 33.0% 34.4%
SG&A percentage 20.3% 19.9%

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