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Fitch Rates Kohl's Proposed 10-Year Notes 'BBB+'



  Fitch Rates Kohl's Proposed 10-Year Notes 'BBB+'

Business Wire

NEW YORK -- September 5, 2013

Fitch Ratings has assigned a rating of 'BBB+' to Kohl's Corporation's (Kohl's)
proposed issue of $300 million 10-year senior unsecured notes. The new notes
are expected to be used for general corporate purposes which may include share
repurchases. As of Aug. 3, 2013, Kohl's had $4.6 billion of debt outstanding,
including capital leases. A full list of ratings is provided at the end of
this release.

KEY RATING DRIVERS

Kohl's ratings reflect the company's stable market position as the
third-largest department store retailer in the U.S., industry-leading
operating margins, convenient off-mall store format, and good growth in
higher-margined private and exclusive brands.

While Kohl's market share has been stable for the past two to three years,
Fitch remains concerned on the softness in the company's comparable store
sales trends (comps) that have been weak since late 2011. At the current
rating level, Fitch would expect Kohl's to continue to gain market share which
would require the company to generate comps in the 1%-1.5% range. This would
require stabilization in store-level comps, assuming online sales to grow at
15%-20%. The inability to stabilize store-level comps to the extent to hinder
overall comps from growing at over 1% in the next 12-24 months could lead to
ratings pressure.

Fitch expects Kohl's comps to remain relatively flat in 2013 versus 2012
reflecting the weaker-than-expected sales performance in first quarter 2013
and lack of one-week of sales during the holiday season in 2013. Overall sales
are expected to grow in the 0.5% to 1.5% range in 2013-2014 as Kohl's square
footage growth has slowed down significantly since 2008 and is expected to
remain in the low single digit range in the next two to three years. This
assumes 12 store openings in 2013 compared with 21 in 2012 and 40 in 2011,
mostly in its small-box format.

Kohl's gross margin came out better than expected in first-half 2013 despite
the soft sales trend. As a result, Fitch expects Kohl's EBITDA margin to
remain flat at around mid-14% in 2013, which would still be strong for the
sector. Kohl's industry-leading operating margins have provided the company
some flexibility to invest in sharper pricing over the last several quarters.

Given an EBITDA expectation of approximately $2.8 billion for 2013 and pro
forma for the $300 million incremental debt issuance, Fitch expects adjusted
debt/EBITDAR could increase modestly to the 2.3x-2.4x range at the end of
2013, which is modestly above the company's currently stated leverage target
of 2.0x-2.25x, but consistent within Fitch's expectations.

Fitch expects working capital could turn neutral to somewhat positive source
of cash in 2013 as management continues to be focused on trimming down
inventory. Free cash flow (FCF) is expected to be approximately $800
million-$900 million in 2013-2014. This assumes working capital is neutral and
capital expenditures are in the $700 million-$750 million range to support
e-commerce growth and its store opening and remodelling program (30 expected
for 2013 versus 50 in 2012 and 100 in 2011). Fitch expects FCF to be directed
toward share buybacks.

Kohl's liquidity is supported by its strong cash balance and a $1 billion
senior unsecured revolving bank credit facility due in June 2018. Kohl's has
no debt maturities prior to 2017 and Fitch expects the company will continue
to be disciplined in managing its cash flow allocation, share repurchases, and
debt levels.

RATING SENSITIVITIES

A negative rating action could result in the event of one or more of the
following:

--If retail store comps fail to stabilize and overall comps (including online
sales) do not improve to a level of 1% or better in the next 12-24 months.

--A weakening profitability profile (where EBITDA drops to below $2.5 billion
from an expected $2.8 billion for 2013) and/or a more aggressive financial
posture that would take leverage above 2.5x.

A positive rating action is unlikely at this time as it would require Kohl's
to manage adjusted leverage to below its stated target of 2.0x-2.25x.

Fitch currently rates Kohl's as follows:

--Long-term Issuer Default Rating (IDR) 'BBB+';

--$1 billion bank credit facility 'BBB+;

--Senior unsecured notes and debentures 'BBB+'.

The Rating Outlook is Stable.

Additional information is available at 'www.fitchratings.com'. The ratings
above were unsolicited

and have been provided by Fitch as a service to investors.

Applicable Criteria and Related Research:

--'Corporate Rating Methodology' (Aug. 5, 2013);

--'Evaluating Corporate Governance' (Dec. 12, 2012).

Applicable Criteria and Related Research:

Corporate Rating Methodology: Including Short-Term Ratings and Parent and
Subsidiary Linkage

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=715139

Evaluating Corporate Governance

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=694649

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=801336

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS.
PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK:
HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING
DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S
PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND
METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF
CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL,
COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM
THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER
PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS
OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN
EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER
ON THE FITCH WEBSITE.

Contact:

Fitch Ratings
Primary Analyst
Isabel Hu, CFA, +1-212-908-0672
Associate Director
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
or
Secondary Analyst
Monica Aggarwal, CFA, +1-212-908-0282
Senior Director
or
Committee Chairperson
Michael Simonton, CFA, +1-312-368-3138
Managing Director
or
Media Relations
Brian Bertsch, +1-212-908-0549
brian.bertsch@fitchratings.com
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