KSS 10-Q Quarter ended July 28, 2012

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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended July 28, 2012

OR

For the transition period from                     to

Commission file number 1-11084

KOHL’S CORPORATION

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code (262) 703-7000

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by a check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes ¨ No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: August 25, 2012 Common Stock, Par Value $0.01 per Share, 234,507,513 shares outstanding.

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KOHL’S CORPORATION

INDEX

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KOHL’S CORPORATION

(In Millions)

See accompanying Notes to Condensed Consolidated Financial Statements

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KOHL’S CORPORATION

(Unaudited)

(In Millions, Except per Share Data)

KOHL’S CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF

COMPREHENSIVE INCOME

(Unaudited)

(In Millions)

See accompanying Notes to Condensed Consolidated Financial Statements

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KOHL’S CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY

(Unaudited)

(In Millions, Except per Share Data)

See accompanying Notes to Condensed Consolidated Financial Statements

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KOHL’S CORPORATION

(Unaudited)

(In Millions)

See accompanying Notes to Condensed Consolidated Financial Statements

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KOHL’S CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Basis of Presentation

The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for fiscal year end financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. For further information, refer to the financial statements and related footnotes included in our Form 10-K for the fiscal year ended January 28, 2012 (Commission File No. 1-11084) as filed with the Securities and Exchange Commission on March 16, 2012.

Due to the seasonality of our business, results for any quarter are not necessarily indicative of the results that may be achieved for a full fiscal year. In addition, quarterly results of operations depend significantly upon the timing and amount of sales and costs associated with the opening of new stores.

We operate as a single business unit.

We have corrected the presentation of $69 million of long-term lease assets that were previously netted against other long-term liabilities in our Condensed Consolidated Balance Sheet as of July 30, 2011. We have also corrected the presentation of short-term deferred tax assets that were previously recorded as long-term deferred tax liabilities. This change was $37 million as of January 28, 2012 and $27 million as of July 30, 2011.

Long-term debt consists of the following non-callable and unsecured senior debt:

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3. Fair Value Measurements

ASC No. 820, “Fair Value Measurements and Disclosures,” requires fair value measurements be classified and disclosed in one of the following three categories:

Our cash and cash equivalents are classified as a Level 1 pricing category. The carrying value of our cash and cash equivalents approximates fair value because maturities are three months or less.

Our long-term investments consist primarily of investments in auction rate securities (“ARS”). The par value of our long-term investments was $142 million as of July 28, 2012, $193 million as of January 28, 2012 and $241 million as of July 30, 2011. The estimated fair value of these securities was $102 million as of July 28, 2012, $153 million as of January 28, 2012 and $208 million as of July 30, 2011.

All ARS are classified as a Level 3 pricing category. The fair value for our ARS were based on third-party pricing models which utilized a discounted cash flow model for each of the securities as there was no recent activity in the secondary markets in these types of securities. This model used a combination of observable inputs which were developed using publicly available market data obtained from independent sources and unobservable inputs that reflect our own estimates of the assumptions that market participants would use in pricing the investments. Observable inputs include interest rate currently being paid, maturity and credit ratings.

Unobservable inputs include expected redemption date and discount rate. We assumed a seven-year redemption period in valuing our ARS. We intend to hold our ARS until maturity or until we can liquidate them at par value. Based on our other sources of income, we do not believe we will be required to sell them before recovery of par value. In some cases, holding the security until recovery may mean until maturity, which ranges from 2016 to 2041. The weighted-average maturity date is 2035. The discount rate was calculated using the closest match available for other insured asset backed securities. Discount rates ranged from 3.02% to 13.52%. The weighted-average discount rate was 7.87%. A market failure scenario was employed as recent successful auctions of these securities were very limited. Assuming a longer redemption period and a higher discount rate would result in a lower fair market value. Similarly, assuming a shorter redemption period and a lower discount rate would result in a higher fair market value.

The following table presents a rollforward of our long-term investments:

Our senior debt is classified as a Level 1 pricing category and had an estimated fair market value of $2.5 billion at July 28, 2012, $2.4 billion at January 28, 2012 and $1.8 billion at July 30, 2011.

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4. Share-Based Compensation

We currently grant share-based compensation, including options to purchase shares of our common stock and nonvested stock to employees and outside directors, pursuant to the Kohl’s Corporation 2010 Long-Term Compensation Plan. Annual grants of stock options and nonvested stock are generally made to eligible employees in the first quarter of the fiscal year. Grants to newly-hired and promoted employees and other discretionary grants are made periodically throughout the remainder of the year. Grants of stock options and nonvested stock are generally made to eligible outside directors upon their initial election to the Board of Directors and annually upon each such director’s re-election.

The Black-Scholes option valuation model was used to estimate the fair value of each option award during the first six months of the respective fiscal year based on the following assumptions:

The following table summarizes our stock option activity for the first six months of 2012 and 2011:

The following table summarizes our nonvested stock activity for the first six months of 2012 and 2011:

Share-based compensation expense for both stock options and nonvested stock awards totaled $12 million for the three months ended July 28, 2012, $14 million for the three months ended July 30, 2011, $24 million for the six months ended July 28, 2012 and $29 million for the six months ended July 30, 2011. At July 28, 2012, we had approximately $160 million of unrecognized share-based compensation expense (before forfeitures and capitalization), which is expected to be recognized over a weighted average period of 3.5 years.

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5. Contingencies

We are involved in various legal matters arising in the normal course of business. In the opinion of management, the outcome of such proceedings and litigation will not have a material adverse impact on our consolidated financial statements.

6. Net Income Per Share

The calculations of the numerator and denominator for basic and diluted net income per share are summarized as follows:

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For purposes of the following discussion, all references to “the quarter” and “the second quarter” are for the 13-week fiscal periods ended July 28, 2012 and July 30, 2011 and all references to “year to date” are for the 26-week fiscal periods ended July 28, 2012 and July 30, 2011.

The following discussion should be read in conjunction with our Condensed Consolidated Financial Statements and the related notes included elsewhere in this report, as well as the financial and other information included in our 2011 Annual Report on Form 10-K (our “2011 Form 10-K”). The following discussion may contain forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could materially differ from those discussed in these forward-looking statements. Factors that could cause or contribute to those differences include, but are not limited to, those discussed elsewhere in this report and in our 2011 Form 10-K (particularly in “Risk Factors”).

Executive Summary

Net income was $240 million ($1.00 per diluted share) for the quarter compared to $299 million ($1.08 per diluted share) in the prior year quarter. Year to date, net income was $394 million ($1.63 per diluted share) in 2012 compared to $500 million ($1.76 per diluted share) in 2011.

Total sales for the second quarter were $4.2 billion this year, a decrease of 1.0% from the second quarter of 2011. Year to date total sales were $8.4 billion, an increase of 0.4% over last year. Comparable store sales decreased 2.7% for the quarter and 1.3% year to date. The decrease in comparable store sales in both periods reflects lower units per transaction and fewer transactions, partially offset by higher average unit retail pricing. E-Commerce sales increased 39% for the quarter and 36% year to date.

Gross margin as a percent of net sales decreased approximately 160 basis points from the second quarter of 2011 and 190 basis points from the first six months of 2011 as we focused on improving value for our customer during the current year. Selling, general and administrative expenses as a percent of net sales improved, or “leveraged,” in both periods. Credit provided the most significant leverage, but we also saw positive results in our store payroll, remodel costs and corporate expenses.

We operated 1,134 stores as of July 28, 2012 and 1,097 stores as of July 30, 2011. Selling square footage was 83 million at July 28, 2012 and 81 million at July 30, 2011. We opened nine new stores, including one relocated store, and closed one store during the first six months of 2012. We plan to open 12 more stores in the fall season. Substantially all of the new stores will be “small” stores with less than 64,000 square feet of retail space. We reduced the number of remodels to approximately 50 stores this year as we assess potential changes to our store layout to increase sales productivity and operational efficiency.

Results of Operations

Net Sales

Net sales decreased 1.0% from $4.25 billion in the second quarter of 2011 to $4.21 billion in the second quarter of 2012. Year to date, net sales increased 0.4% from $8.41 billion for the first six months of 2011 to $8.45 billion for the first six months of 2012. On a comparable store basis, sales decreased 2.7% for the quarter and 1.3% year to date. We define comparable store sales as sales from stores (including relocated and remodeled stores) open throughout the full current and prior fiscal periods and from E-Commerce.

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The sales changes were due to the following: