Kohl's 2003 Annual Report Download - page 4

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Without question, 2003 was a very difficult year for Kohl’s.
Although we achieved record sales for our twelfth consecutive
year as a public company, our earnings performance was a
disappointment.
Net sales crossed the $10 billion milestone, increasing 12.7%
to $10.3 billion. Net income, however, decreased 8.1% to
$591 million or $1.72 per diluted share in fiscal 2003 and
comparable store sales were down 1.6%. Clearly, we did not
achieve our goal of 20% earnings growth. Profitably increasing
our comparable store sales is our number-one priority.
How Did it Happen?
We could take the easy way out and blame it on external factors
such as the weather, the war and the economy. The reality is
we did not execute to our normally high standards. We got off
track, and we are responsible for getting things back on track.
We did not execute to our standards in three key areas:
inventory levels and content, the customer shopping experience
and marketing. Our stores were over-stocked and difficult
to shop. Our assortment in misses and women’s was not what
our customer was looking for. And, our marketing was no
longer unique in a highly promotional retail environment.
To validate our conclusions, we conducted extensive
customer research, both quantitative and qualitative.
This research verified our analysis. At the same time,
our customer confirmed that our mission statement is what
she’s looking for, a value-oriented department store offering
national brand merchandise in a clean, friendly, convenient
environment. We’ve learned from our mistakes and are
taking the actions needed to correct them. We recognize
that we need to restore her trust in us.
We are confident that our business model is sound and we
are positioned to increase market share. We have reduced our
inventory levels appropriately and made modifications to our
merchandise assortment. We are encouraged by the start to the
spring season. That being said, we will remain conservative in
our inventory levels and rely upon our strong vendor partnerships
to replenish seasonal product based upon rate of sale.
Financially Strong
Although we were extremely disappointed with our
performance in 2003, Kohl’s continues to be financially strong.
Our sales per square foot are among the highest in the
industry. Our operating margin of 10% in 2003 is also one
of the highest in the industry. Our capital structure is well
positioned to continue to support our expansion plans.
Internally generated cash flows will continue to be the primary
source of the funding required for our future growth.
As always, we remain committed to managing our business
both ethically and responsibly and to representing the
best interest of our shareholders through good corporate
governance. After thorough review by its Governance and
Nominating Committee, the Board of Directors believes
the company is in full compliance with all applicable
corporate governance rules of the Securities and Exchange
Commission and the New York Stock Exchange.
“While many department store chains try to imitate
us, there is only one Kohl’s. The foundation for our
success is our well-established concept of brands,
value and convenience.”
Dear Shareholders:
Kevin Mansell,
Arlene Meier and
Larry Montgomery