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02/22/2021

Kohl's rejects activist investor group's move for board control

Marianne Wilson
Editor-in-Chief
Marianne Wilson profile picture

Kohl’s Corp. is pushing back against a group of activist investors who think the retailer is not moving quick enough to address “stagnant sales” and “declining gross margins” — issues that it said predate the pandemic.
 
The group, which together control a combined 9.5% stake in Kohl’s,  is made up of Macellum Advisors GP LLC, Ancora Holdings Inc., Legion Partners Asset Management LLC and 4010 Capital LLC (the same companies previously teamed up to remake the Bed Bath & Beyond board). The group earlier this year nominated nine people to Kohl’s current board. They want the department store company to add directors with deep retail experience, reduce executive compensation, stop its “dizzying array of promotional gimmicks and slash inventory levels.

Kohl's issued a statement in which it said that it rejects the investor group’s attempt to seize control of its board and disrupt its momentum, "especially considering that we are well underway in implementing a strong growth strategy and accelerating our performance, and we have refreshed half our board with six new independent directors since 2016."

"Today is the first time the investor group has shared any details about their plans to create value," the retailer stated. "Our new strategic plan already includes several initiatives they propose and we have also determined that other ideas they propose would not be accretive to shareholder value."

The activist group is looking to drive Kohl’s stock price more than two times higher than current levels through a sale-leaseback program for $3 billion worth of real estate and a major share repurchase program, it stated in a letter to Kohl’s stockholders. The group said it believes Kohl’s stock price has “chronically underperformed against its peers and relevant indices because the board has failed to help develop and oversee a strategic plan to respond to a rapidly-changing retail landscape.”  

“Over the past decade, the company has lost market share to other retailers and suffered declining gross margins, despite increasing SG&A spend, capital investments and executive compensation,” the group stated. “These persistent failures have been led by several different senior executive teams but overseen by substantially the same board.” 

The group criticized Kohl’s business performance during the decade leading up to 2020, prior to the pandemic, “and the implication for future performance, once the economy reopens, based on the systemic inability of the company to execute a plan that creates shareholder value.”

The activists want to place a “world-class team of retail industry experts with extensive retail, turnaround, capital allocation and strategic experience” on the board to work with Kohl’s CEO Michelle Gass, who has announced a number of initiatives aimed at improving the company’s performance, including opening in-store Sephora shops in Kohl’s stores. 

 Kohl’s said its board and management team have been engaged in discussions with the investor group since early December, "and we remain open to new ideas that will improve our operating performance and capital allocation."