Kohl’s is under pressure from an activist investor to improve its business to boost its stock price or explore a sale.
Kohl’s Corp. wasted no time in responding to new pressure from activist hedge fund Macellum Advisors.
The investor, which has a roughly 5% stake in Kohl’s, sent an open letter on Tuesday to Kohl's shareholders in which it said the retailer should explore strategic options, including a sale, if it does not improve its business to boost its stock price. The move comes about 10 months after Kohl’s reached a deal with a group of activist investors that included Macellum to add two of the group's nominees to its board as independent directors.
"We have continued to engage with Macellum since the settlement and are disappointed with the path they have taken and the unfounded speculation in their announcement and letter," Kohl's said in a statement. "Based on our performance in 2021, we are positioned to exceed our key 2023 financial goals two years ahead of plan. We remain confident in our future and have accelerated our share repurchase activity. In 2021, we continue to expect to repurchase $1.3 billion in shares, reinforcing our commitment to driving shareholder value."
In its letter, Macellum noted that the retailer’s stock price has declined approximately 22% since reaching the deal for the two nominees in April 2021. It said that the company has spent another year "materially mismanaging the business and failing to implement necessary operational, financial and strategic improvements.”
Macellum also said that Kohl’s has produced “some of the worst revenue numbers in its retail peer group since the economy began reopening in 2021,” and that it failed to grow 2021 revenue versus. 2019 levels. Although the company’s profits are up in recent quarters, but they have “dramatically trailed the average of its retail peer group,” Macellum stated.
“Given this underperformance, it is clear to us that the current board and management team do not understand the competitive dynamics in retail today,” Macellum stated. “We contend they can no longer be allowed to oversee the degradation of this valuable brand and high-potential business.”
Kohl's, however, said that as recently as this weekend, Macellum refused to enter a confidentiality agreement to hear about the retailer's progress across operating performance metrics, strategic initiatives and capital allocation plans, "and provide input on these matters as a shareholder. "
"They have been unwilling to constructively engage," Kohl's stated.
The investor said it planned to nominate a slate of director candidates at the company’s shareholders meeting this year unless Kohl's decides to work with it to “promptly implement changes to improve operational execution and optimize the balance sheet.” Macellum said it believes Kohl’s stock could be valued at $100 per share, which more than double Friday's closing price of $47.77, if the company were to make changes to improve operation execution and optimize its balance sheet, which could include selling some of its $7 billion to $8 billion worth of real estate assets.
If the Kohl’s board is unwilling to work pursue the improvements outlined by Macellum, it should explore strategic alternatives, including a sale, the investor said.
“We believe there are well-capitalized strategic and financial buyers that could pay a meaningful premium to acquire Kohl’s,” Macellum stated. “We also see value-creation potential in separating the company’s e-commerce and brick-and-mortar businesses.”