• Linkdin
Maximize your media exposure with Fibre2Fashion's single PR package  |   Know More

Fitch downgrades Kohl's Corp to 'BBB'

16 Apr '16
5 min read


EBITDA margins fell from 15.9 per cent in 2011 to 13.2 per cent in 2015, due to increased online penetration, promotional activity to clear excess merchandise, SG&A investments and expense deleverage on flat comps. As a result, EBITDA declined from $3 billion in 2011 to $2.5 billion in 2015.

Given sector challenges, Fitch expects the above Profit and Loss dynamics to continue. Sales are expected to be flattish over the next 24 to 36 months with flat to modest comp growth and 60-70 bps hit to top line from an assumed 20 store closings annually. Gross margin is expected to decline 10 bps to 15 bps annually given the migration of sales online, relative to Kohl's projection flat to up 20 bps per year which it expects to achieve through better inventory management, localization and its speed initiatives. Fitch expects selling, general and administrative expenses (SG&A) to grow 1 per cent annually.

EBITDA, therefore, is likely to trend toward $2.1 - $2.2 billion by 2018, with EBITDA margin declining to 11 per cent to 11.5 per cent.

Kohl's adjusted leverage has moved from the low-2.0x range in 2012 to 2.5x primarily on EBITDA declines. Kohl's continues to generate good free cash flow after dividends (FCF) which is expected to be $750 million to $800 million in 2016 and $400 million to $450 million annually in 2017-18. FCF is expected to be used for share repurchases rather than debt paydown. As a result, adjusted leverage is expected to trend towards the high-2.0x.

A positive rating action would occur if a reacceleration of comps drove EBITDA above $2.6 billion, yielding adjusted leverage in the low-2.0x, Fitch said.

A negative rating action could result if EBITDA margin declined below 11 per cent on low-single digit sales declines, resulting in EBITDA below $2.0 billion and adjusted leverage above 3.0x.

Kohl's liquidity is supported by its strong cash balance of $700 million as of January 30, 2016, and a $1 billion senior unsecured revolving bank credit facility due in July 2020. Kohl's has no debt maturities prior to 2021.

Fitch projects free cash flow after dividends (FCF) of $750 million to $800 million in 2016 due to positive working capital contribution of $200 million (versus a drain of $400 million in 2015) and FCF of $400 million to $450 million annually in 2017-18 assuming modest working capital improvement. (SH)

Fibre2Fashion News Desk – India

Leave your Comments

Esteemed Clients

TÜYAP IHTISAS FUARLARI A.S.
Tradewind International Servicing
Thermore (Far East) Ltd.
The LYCRA Company Singapore  Pte. Ltd
Thai Trade Center
Thai Acrylic Fibre Company Limited
TEXVALLEY MARKET LIMITED
TESTEX AG, Swiss Textile Testing Institute
Telangana State Industrial Infrastructure Corporation Limited (TSllC Ltd)
Taiwan Textile Federation (TTF)
SUZHOU TUE HI-TECH NONWOVEN MACHINERY CO.,LTD
Stahl Holdings B.V.,
Advanced Search