Activists Seek to Keep Pressure on Kohl’s

The tit-for-tat phase of the battle for Kohl’s Corp. is now in full swing. 

Activist investors — already frustrated with what they see as years of stagnation and looking to replace Kohl’s board — sounded off on the retailer’s fourth-quarter results in a letter to other shareholders Friday.

“We believe Kohl’s fourth-quarter earnings report and full-year 2021 guidance substantiate the immediate need for change on the board,” the activists, who control 9.5 percent of Kohl’s stock, said in the letter. “The board seems to be content performing just slightly better than the worst companies in retail. ‘Best of the worst’ is not a viable strategy, nor does it satisfy shareholders like us seeking long-term superior performance. Kohl’s is enormously well positioned with off-mall locations, which has significant advantages, but it also means Kohl’s competes against thriving off-mall players like TJX Companies, Ross Stores, Target, Old Navy and Burlington. We believe that a refreshed board must oversee the development of a robust road map to compete for market share broadly in the soft goods, discretionary sector.”

The investor group, including Macellum Advisors, Ancora Holdings, Legion Partners Asset Management and 4010 Capital, is gearing what is in effect a marketing campaign, trying to sell other shareholders on their plans to push the company in a new direction.

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In their first public shot at the company last month, the investors argued that Kohl’s is sitting on $7 billion to $8 billion of real estate. They said at least $3 billion of that could be unlocked within three months by selling properties and then leasing them back. 

The group also argued in their latest letter that Kohl’s is planning for 2021 sales and earnings that are below 2019 levels, noting that, “Setting low operating goals raises substantial questions about board oversight and lack of urgency. The Investor Group was pleased to hear from management that it was setting a 7 percent to 8 percent operating margin target that can be achieved without sales recovering to 2019 levels. However, this newly unveiled goal suggests that the company should have been able to reach a 7 percent to 8 percent operating margin in 2019, whereas it actually posted an operating margin of only 6.1 percent.”

Michelle Gass, chief executive officer, effectively gave her response when the company reported fourth-quarter results, talking up her deal to link with Sephora, which she said will have a halo effect on women’s. The company is also adding goods from Calvin Klein, which will be positioned near Sephora, offering a more aspirational vision for consumers. 

“I think about Kohl’s and it’s about driving relevance in people’s everyday lives,” Gass said. “Everything we’re doing right now is connected back to that strategy.”

A statement from Kohl’s on Friday argued that the company’s current strategy is a long-term vision while the activists are looking for a quick payout. 

“Our business is building momentum and we have a clear strategy to accelerate revenues and profitability,” Kohl’s said. “Our recent operating results outperform across key metrics and demonstrate that we are on the right path. The activist investor group’s comparisons of 2019 results to expectations for 2021 are nonsensical given a continuing global pandemic. The activist’s comments and track record reveal that they are focused on short-term payout at the expense of sustainable success. The Kohl’s board of directors and management have successfully positioned our company for a multiyear improvement at the top and bottom line. We reject the activists’ short-termism and their attempt to disrupt our momentum at this critical time. We remain open and interested in new ideas that can help us increase value for our company and our shareholders.”

Unless the two sides settle, the battle might only grow louder as the company barrels toward its annual meeting this spring.

Jonathan Duskin, CEO of Macellum, told WWD last month: “I’m not going away. I’m going to fix this company, just like I fixed Bed Bath & Beyond.”


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