Activist investor again pressuring Kohl’s to improve financial performance

Almost a year after settling a proxy battle with activist investors, Menomonee Falls-based Kohl’s Corp. has again come under fire for its depreciating stock price.

In an open letter to fellow shareholders Tuesday, New York hedge fund Macellum Capital Management accused the retailer’s board of directors and executive leadership for “materially mismanaging the business and failing to implement necessary operational, financial and strategic improvements,” blaming them for a 22% drop in Kohl’s stock price since April 2021.

With a 5% stake in Kohl’s Corp., Macellum was part of the activist investor group that attempted to take control of its board last year. Ultimately, Kohl’s agreed in April to add two directors nominated by the investor group: Margaret Jenkins, former chief marketing officer at Denny’s Inc. and Thomas Kingsbury, former chief executive officer at Burlington Stores. Separately, Kohl’s selected Christine Day, former CEO of Lululemon Athletica as a third addition. The board also agreed to expand its share repurchase authorization from $300 million to $2 billion.

After net sales for the first three quarters of 2021 caught up to pre-pandemic levels, Kohl’s for a second time raised its guidance for top and bottom line improvements for the full year. Plus, The company’s operating margin was 8.4%, marking the highest Q3 operating margin in nine years. Still, Macellum argues that Kohl’s 2021 performance pales in comparison to its industry peers. The hedge fund is now demanding more of the $7.5 billion department store operator. 

According to the letter, Macellum recently made a private offer to further refresh the board by more adding directors with retail sector expertise. Kohl’s rejected the offer and asked the hedge fund to sign a non-disclosure agreement, barring it from speaking publicly and sharing concerns with shareholders until investor day in March. In return, Kohl’s offered a preview of its investor day presentation. 

“We are vexed by management’s lack of urgency and insistence that, after another disappointing year, shareholders should wait patiently until March to hear yet another strategy unveiled,” wrote Macellum.

If Kohl’s does not agree to make further changes to its board and financial position, Macellum plans to nominate a slate of independent board candidates for election at the 2022 annual meeting. What’s more, Macellum said Kohl’s should consider a sale of the company if it’s unwilling to take the firm’s suggestions, which includes monetizing $4 billion of its real estate and returning the proceeds to shareholders through a buy-back program. That’s a suggestion Kohl’s previously rejected. With its guidance, the investor argues that Kohl’s stock value has potential to reach $100 per share. Kohl’s shares opened Tuesday at $47.54.  

Responding to Macellum’s letter, Kohl’s said it has “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.”

The retailer pointed to its strong third quarter performance, with net sales up 16%, as well as the momentum of new initiatives including Sephora at Kohl’s, which debuted in 200 stores and online last fall. Based on 2021 growth, Kohl’s says it is poised to exceed its key 2023 financial goals two years ahead of expectations. The company plans to share updates on its financial health and strategy at its March 7 investor day.

According to Kohl’s, Macellum over the weekend refused to enter a confidentiality agreement to learn about and provide input on the company’s progress, and for that reason the company accused the firm of being “unwilling to constructively engage.”

“The board and management remain focused on sustained value creation. Distracting the company from this focus does not benefit shareholders,” said Kohl’s.