Kohl’s Corp., faced with some looming debt obligations, has commenced a private offering of approximately $360 million of senior secured notes due 2030.
Kohl’s, in its disclosure on Tuesday, indicated it intends to use the proceeds to repay borrowings under its revolving credit facility. Kohl’s then expects to borrow from its revolving credit facility to repay all of its 4.25 percent notes due 2025 at maturity.
The Menomonee Falls, Wisc.-based value-oriented family retailer also indicated the new notes are expected to be secured by 11 distribution centers and e-commerce fulfillment facilities, among other collateral, which will be held in a newly formed holding company. The offering is subject to market and other conditions. There is no assurance that the offering will be completed or on its terms if the offering is completed, Kohl’s said.
Fitch Ratings assigned a “BB-plus” rating on the new notes. Fitch has also affirmed Kohl’s existing ratings, including its long-term issuer default rating at “BB-minus.” The rating outlook remains negative.
“Kohl’s rating and outlook reflects its ongoing operational challenges,” Fitch indicated Tuesday. “The company is adjusting its operating strategy, but its ability to stabilize market share, particularly in apparel, is uncertain. The rating recognizes Kohl’s tools in executing its turnaround, including a reasonable asset base and ability to invest $400 million in capital expenditures.”
Fitch projects 2025 earnings before interest and taxes could decline 15 percent to 20 percent toward $800 million, with midsingle-digit revenue declines. Fitch could revise the outlook with evidence that Kohl’s can improve its topline trajectory and stabilize EBITDA around $800 million.
“Kohl’s results have been weak, with 2024 revenue and EBITDA declining 20 percent and 50 percent from 2019 levels, respectively, despite growth in newer categories like beauty through Sephora,” Fitch said. “The company’s market share declines in core categories like apparel appear worse than those of peers in the challenged department store industry, suggesting company-specific execution challenges. Recent events, including weak 2025 guidance implying another year of revenue and EBITDA declines, chief executive officer changes, the announced closure of 27 stores, or about 2 percent of the base, and a 75 percent dividend reduction, underscore Kohl’s near-term challenges.
“The company’s near-term focus is to sharpen the merchandise assortment, improve the company’s value messaging and optimize its omnichannel model to provide a frictionless shopping experience. Fitch believes these are reasonable focus areas but given the company’s recent history, magnified by secular challenges in the department store industry and near-term headwinds for discretionary goods, the timing and level of operating stabilization remains uncertain.”
On the more positive side, Fitch reported Kohl’s “has a reasonable store base with limited indoor mall exposure, good omnichannel capabilities and cash flow generation to materially invest in top-line strategies, along with productive relationships with merchandise vendors and key partners. Following recent performance, Fitch believes the company’s medium-term turnaround prospects are limited, with revenue and EBITDA stabilizing around $15 billion and $800 million, respectively, as a best-case scenario.”
Kohl’s issues are complicated by last month’s firing of its CEO Ashley Buchanan and the resignation of board member Christine Day last week.
Buchanan was fired following an investigation by outside counsel which determined he directed the company to engage in vendor transactions on highly unusual terms with a woman he has been romantically involved with, Chandra Holt, without disclosing what he was doing. Michael Bender, chairman of Kohl’s board for the past year and a director since July 2019, was appointed interim CEO.
Day resigned from the board over a disagreement with the company’s response to a “say-to-pay” recommendation giving shareholders the right to vote on executive compensation, “disappointment with the level of governance process,” and because she felt “alienated and out of the loop.” The recommendation was from the International Shareholders Services group, which provides corporate governance and investment solutions and advice, market intelligence and other services to corporate clients. Day was a member of the board’s compensation, audit and finance committees.