Fitch Affirms Kohl's Corp. at 'A'; Outlook Revised to Stable.

CHICAGO -- Fitch Ratings has affirmed Kohl's Corporation's $665 million of bank credit facilities and $1 billion of senior notes at 'A'. At the same time, the Rating Outlook has been revised to Stable from Negative.

The affirmation reflects Kohl's productive store format and solid financial profile weighed against the challenges in executing an aggressive expansion program. The Stable Outlook reflects improved sales trends following a difficult 2003-2004, and the expectation that Kohl's will produce more consistent operating results going forward.

Kohl's operations have been helped by the introduction of new apparel brands over the past year, including more updated and contemporary styles. The company has also eliminated excess inventories, which has enhanced the in-store shopping experience. These efforts enabled Kohl's to regain its sales and earnings momentum in 2005, with comparable store sales up 5.4% year to date. In addition, the operating margin improved to 10.6% in the 12 months ended April 30, 2005 from 10.0% in 2003.

Kohl's maintains an aggressive new-store opening schedule, making it the fastest growing department store chain, and one of the fastest growing retailers. While growth into new regions of the country presents challenges, Fitch believes that Kohl's has the infrastructure in place to manage its new store expansion while also taking steps to improve the productivity of its existing stores. Positively, the rate of square footage expansion has gradually declined from 20.1% in 2003 to 18.7% in 2004 to a projected 15% in 2005. Kohl's benefits from the fact that its store base and distribution infrastructure are relatively new.

While new store growth remains aggressive, it is being financed internally, as the company was free cash flow positive for the first time in 2004 and should continue to generate positive free cash flow in the coming years. Leverage, as measured by adjusted debt to funds from operations, has been steady at around 2.5 times over the past several years. Kohl's would likely consider opportunistic real estate acquisitions, but does not currently plan to pay a dividend or repurchase its shares. As a result, leverage should be steady to modestly improved over the medium term.

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