Kohl’s Shares Jumps as Activist Investors Pounce

Activists have come for Kohl’s Corp.

The company is under pressure from a group of investors that have 9.5 percent of its stock and is pushing for board changes and a $3 billion sale-leaseback program that would drum up money from the retailer’s real estate portfolio. 

Investors, who tend to react positively at first when activists start pushing for companies to boost profitability, pushed shares of the company up 8.9 percent to $57.39 in pre-market trading on Monday.  

The activist campaign includes Macellum Advisors, Ancora Holdings Inc., Legion Partners Asset Management and 4010 Capital, which sent an open letter to Kohl’s shareholders today. The Wall Street Journal first reported the letter. 

“Poor retail execution and strategy have led to stagnant sales and declining operating margins,” the group said. “The board has overseen a long list of sales and margin driving initiatives which have created no meaningful value for shareholders. As a result, Kohl’s has suffered from stagnant sales, market share loss, declining gross margins and bloated [selling, general and administrative expenses] – all of which has contributed to operating income margins declining from 11.5 percent in 2011 to 6.1 percent in 2019.”

Kohl’s earned nearly $1 billion less in operating profits than it did in 2011 despite similar sales, the activists said, taking aim at the company’s board.  

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“Long-tenured board with insufficient retail experience and lack of any material share ownership is an impediment to serving shareholder interests,” they said, adding that compensation for the company’s top five executives grew to $30 million in 2019 from $20 million in 2010.

The activists are proposing its own directors, teeing up a fight at the retailer’s annual meeting, although such fights are sometimes settled beforehand with some kind of compromise that sees new voices brought into the boardroom.

“The investor group has identified significant opportunities to generate improvements in sales and margins through changes in merchandising, inventory management, customer engagement and expense rationalization, as well as the potential to unlock $7 to $8 billion of real estate value trapped on the company’s balance sheet,” the activists said.

The retailer responded to the activist campaign by noting: “The Kohl’s board and management team have been engaged in discussions with the investor group since early December and we remain open to hearing new ideas. Kohl’s is deeply committed to enhancing shareholder value and is confident the company’s new strategic framework, published in October 2020, will accelerate growth and profitability. Since we published the new strategy, Kohl’s has received seven equity analyst upgrades and our stock price has appreciated more than 150 percent.”

 

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