Shares of discount department store operator Kohl's (NYSE:KSS) rose slightly today following the release of fiscal Q4 (ended Jan. 31) and full-year financial results. While sales crossed the $10 billion mark for the first time, the numbers seem to paint a picture of a company that's fighting aggressively to compete in the discount retail space -- with mixed results.

Full-year revenues improved 12.7% to $10.3 billion, up from $9.1 billion a year ago. Much of that, however, has to be attributed to the opening of 85 stores during the year, as same-store sales fell 1.6%.

The slowdown was even more pronounced in Q4. Gross and operating margins fell from year-ago levels, as SG&A expenses and the cost of merchandise increased as a percentage of revenue. Through the first nine months of the fiscal year, gross margins were pressured by markdowns -- notably, in preparation for the holidays -- while SG&A expenses rose on advertising and store operating costs.

The increased costs offset the revenue growth and led to slimmer net margins. Both net income and earnings per share -- impacted somewhat by a slightly higher share count -- fell year over year.

Because the company provides both a balance sheet and a cash flow statement with its earnings release, we can see some better news. The cash balance improved year over year, inventory levels fell despite store expansion, and long-term debt was about flat. Expansion did, however, cost money, which shows up on the cash flow statement. The company failed, as it has for each of the last five full years, to generate free cash flow.

At 542 stores, Kohl's has an uphill battle in competing with the entrenched retail machine that includes such companies as Wal-Mart (NYSE:WMT), Target (NYSE:TGT), and even Kmart (NASDAQ:KMRT). But it is nevertheless working on a national footprint, focusing this year on the Southwest.

I know Kohl's to be well-regarded by many shoppers, but that doesn't change the fact that, on a compounded annual basis, costs have risen nearly as fast as have revenues over the last four years. The work ahead for the company is considerable.

Fool contributor Dave Marino-Nachison doesn't own any of the companies in this article. He can be reached via email.