Kohl's 2014 Annual Report Download - page 21

Table of Contents
increased over the prior year, the expense "deleveraged" and indicates that sales growth was less than expense growth. SG&A as a percent of sales increased,
or "deleveraged," by approximately 20 basis points in 2014.
IT spending, which is included in corporate expenses, increased over 2013 due to growth and infrastructure investments related to our omni-channel
strategy. Corporate expenses also increased due to higher incentive compensation.
Marketing costs increased in 2014 as we increased our spending in digital and broadcast. In addition, we launched our loyalty program nationwide in
the third quarter of 2014. The increased spending was partially offset by a decrease in spending in newspaper inserts and direct mail.
Distribution costs were $281 million for 2014, $271 million for 2013 and $245 million for 2012. Distribution costs increased in 2014 due to higher
distribution and fulfillment costs related to our growing on-line business, particularly in the fourth quarter.
The decrease in store expenses are the result of lower operating expenses, such as common area maintenance, utilities, and janitorial.
Revenues from our credit card operations were $430 million in 2014, $406 million in 2013 and $388 million in 2012. The increases in net revenues
from credit card operations are the result of higher finance charge revenues and late fees due to growth in the portfolio. Partially offsetting these increases
were higher bad debt expenses and operational costs. The increased operating costs were primarily due to growth in the portfolio.
SG&A for 2013 increased $46 million, or 1% over 2012. As a percentage of sales, SG&A increased, or "deleveraged", by approximately 60 basis points
in 2013. The increase in SG&A was due primarily to higher distribution costs, increased marketing, investments in technology and infrastructure related to
our on-line business. These increases were partially offset by lower incentive costs.
Other Expenses.
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Depreciation and amortization  
$ 889
$ 833
Interest expense, net 
338
329
Provision for income taxes 
515
575
Effective tax rate 
36.7%
36.8%
Depreciation and amortization were consistent in 2014 and 2013, as higher IT amortization was offset by a decrease due to maturing stores. The
increase in depreciation and amortization in 2013 was primarily due to our on-line fulfillment centers and IT amortization.
Net interest expense increased $2 million, or 1%, in 2014 and increased $9 million, or 3%, in 2013. The increases in interest expense are primarily due
to higher outstanding long-term debt following the September 2013 debt issuance.
The decreases in the effective tax rate for 2014 and 2013 were primarily due to favorable settlements of state tax audits in both years.
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Although we expect that our operations will be influenced by general economic conditions, including food, fuel and energy prices, and by costs to
source our merchandise, we do not believe that inflation has had a material effect on our results of operations. However, there can be no assurance that our
business will not be impacted by such factors in the future.
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