Kohl's 2005 Annual Report Download - page 3

“In 2005, we made
significant strides
in bringing expect
great things to life.”
Dear Shareholder,
In our letter to you last year, we introduced our new positioning
statement: expect great things. In 2005, we made significant
strides in bringing expect great things to life.
We differentiated ourselves even further in the marketplace and
provided our customer with a better-than-ever shopping experience.
We added exciting new brands and opened 95 stores in both new
and existing markets. These initiatives focused on one goal - growing
the company profitably.
Strong Financial Performance
2005 was a record year for Kohl’s. Net sales increased 14.5%
to a record $13.4 billion, while comparable store sales rose
3.4%. Net income increased 19.7% to a record $842 million or
$2.43 per diluted share. Our balance sheet remains strong and
we continue to generate significant cash flow from operations.
In February 2006, we repaid $100 million of our long-term debt.
Company Initiatives
We made excellent progress on our 2005 initiatives. These initiatives
focused on merchandise content, marketing, inventory management
and the in-store shopping experience.
From a merchandise perspective, we broadened our customer
reach by introducing new brands and categories into the
merchandise mix. We focused on our customer’s lifestyles to
provide an assortment that satisfies her needs – whether she is
shopping for herself, her family or her home.
Of course, Kohl’s means brands and this is where we continue
to excel. Kohl’s was built on the concept of emphasizing national
brands that project quality and value and have wide customer
appeal. National brands such as Levi’s, Columbia, Nike and many
others across the store are the foundation of our merchandise
offerings. Exclusive national brands, available “Only at Kohl’s,”
and our own private brands further broaden the mix and set us
apart in the market.
In 2006, we will build on our 2005 success and launch even more
new brands. Wewill add Chaps in women’s, boys’ and footwear,
Tony Hawk in men’sand boys’ and West End and AB Studio
in women’s. In addition, Stamp 10 by Liz Claiborne will be introduced
in 300 stores in both women’s and men’s. We are also extending
our contemporary private brands including Candie’s, daisy fuentes
and apt. 9 into other areas of the store. We will complete the
repositioning of our biggest private brands, Croft & Barrow,
Sonoma, and apt. 9, to appeal to three different lifestyles: classic,
updated and contemporary.
Our marketing strategies go hand-in-hand with our merchandise
content and aredesigned to raise our visibility among both loyal,
long-term customers and first-time shoppers who want to see
what all the excitement is about. A successful combination of
integrated fashion-focused advertising and the continued use of
our newspaper inserts helped to drive increases in transactions
per store in 2005. Our advertising continually reminds our
customers that they can expect great things at Kohl’s.
In 2005, better inventory management, along with continually
introducing fresh and exciting new content into our stores,
contributed to our sales increases and helped to improve
gross margin. Wecontinue to focus on consistently buying
the right number of units, improving allocation accuracy,
streamlining the seasonal transition across our various
geographic locations and ensuring that colors and sizes
arein stock by store.
The shopping experience is where everything we do comes
together. We’ve organized departments by lifestyle for ease of
shopping, differentiated special sizes, added graphics that highlight
key trends and presented merchandise to give customers ideas
LETTER TO SHAREHOLDERS
on how to create their own look. These initiatives not only make
it easier to shop our stores, but also more exciting.
Expansion: A Leading National Retailer
In 2005, we continued to bring Kohl’s into new markets and
expand our presence in existing markets. We opened 95 stores,
operating 732 stores in 41 states at the end of the year. The new
store openings were split between new and existing markets.
New markets included Buffalo, New York, and our entry into
Florida with stores in Orlando and Jacksonville.
Looking ahead, we plan to open approximately 500 stores over
the next five years. This growth will come from a strategic blend
of new stores in both new and existing markets, along with
capitalizing on real estate opportunities that may arise as the
industry continues to consolidate.
In fiscal 2006, we plan to open approximately 80 to 85 stores.
We will enter the Northwest with stores in Portland and Seattle that
will be a combination of new builds and the takeover of former
storelocations. Some of our new stores opening in October will
incorporate new design features both on the interior and exterior.
By the end of fiscal 2010, we plan to operate over 1,200 stores
all across the country.Our approach to expansion is very disciplined,
ensuring the consistent execution of our growth strategy.As part
of this strategy,we will continue to update our existing stores to
help drive meaningful gains in market share.
Capital Structure
In March, we entered into a strategic alliance with JPMorgan Chase
to enhance our credit operations. Chase will purchase Kohl’s private
label credit card accounts and the outstanding balances associated
with the accounts under a multi-year program agreement. The total
purchase price, which will be equal to the receivables balances
at the closing date, will be paid in cash and is expected to be
approximately $1.5 billion.
Our customers will continue to receive the same great credit card
benefits. We will continue to handle all customer service functions
and will be responsible for all advertising and marketing related
to our credit card customers. In return, we will receive ongoing
payments related to the profitability of the program.
In anticipation of the sale of the credit accounts receivable, the
Board of Directors has authorized a $2 billion share repurchase
program. The program is expected to be completed over the
next two to three years.
We expect to use the initial proceeds from the credit card
transaction to repurchase Kohl’s stock, fund our store expansion
and for general corporate purposes.
Our Vision
Weare well positioned to continue to execute our growth strategies.
We have a strong and growing base of stores in many key markets
across the country, but there are many more markets where we
can expand. We are leveraging our core concept of brands, value
and convenience to satisfy existing customer needs, broaden our
customer base and improve our customer’s shopping experience.
We have a track record of strong financial performance. Most
importantly, we have a team of over 107,000 Associates who are
dedicated to serving our customers, as well as an experienced
Board of Directors and senior management team that are committed
to long-term profitable growth.
To our shareholders, customers, partners and most of all, our
Associates, thank you for another record year. We look forward
to building on this momentum in 2006 and beyond.
Kevin Mansell
President
Arlene Meier
Chief Operating Officer
Larry Montgomery
Chairman and
Chief Executive Officer
Pictured: Arlene Meier, Larry Montgomery and Kevin Mansell.
SHARE REPURCHASE PROGRAM
The Board of Directors has authorized a
$2 billion share repurchase program.
The program is expected to be completed
over the next two to three years.