A recent report in the Wall Street Journal raises big questions about the future of the two national department store chains that are based in the Milwaukee area – Kohl’s Corp. and Boston Store parent Bon-Ton Stores Inc..
The report, which cites unnamed sources, said leaders of Menomonee Falls-based Kohl’s are considering plans to take the company private or break up the company. Kohl’s directors are considering plans to hire an investment bank to advise the company on alternatives, which could include a sale to a private equity firm, the report says. If such a deal were to occur, it could mean major changes for the company.
Kohl’s stock fell 22 percent in 2015. Kohl’s directors are concerned that the company’s low share price could make it a target for activist investors, the Wall Street Journal report says.
When contacted by BizTimes Milwaukee, a spokesperson for Kohl’s declined to comment on the speculation about the company’s future.
“We are currently in a quiet period and are not able to share any information that has not already been publicly disclosed,” said Kohl’s spokesperson Julia Fennelly.
In November, Kohl’s reported third quarter net income of $120 million, down from $142 million in the third quarter of 2014. Its quarterly operating income was $308 million, up from $304 million in the same period a year ago. Revenue was $4.4 billion in the quarter, flat from the third quarter of 2014. Comparable store sales were up 1 percent, compared with a 1.8 percent decrease in the same period last year.
The Wall Street Journal story also says New York-based private equity firm Sycamore Partners, which acquired Charlotte, N.C.-based Belk Inc. in December, has approached Bon-Ton, which has dual headquarters in Milwaukee and York, Pa., about combining Belk with Bon-Ton. Bon-Ton president and chief executive officer Kathryn Bufano was previously president and chief merchandising officer of Belk.
In November, Bon-Ton reported a third quarter net loss of $34 million, compared with a net loss of $11 million in the third quarter of 2014. Quarterly revenue totaled $623.4 million, down from $642.7 million in 2014’s third quarter. Comparable store sales were down 2.6 percent year-over-year.
Bon-Ton has not turned a profit in four years. Retail analyst Mary Ross Gilbert, managing director at Imperial Capital LLC in Los Angeles, said in order for the company to survive, it will need to consolidate.
“(Bon-Ton and Belk) have been friendly with each other for some time,” said Gilbert, who is a Bon-Ton analyst. “Consolidation makes sense, but it would make more sense to do it after (Bon-Ton) restructures its debt rather than pay for it at a premium now.”
Bon-Ton is among several brick-and-mortar based retailers struggling with decreased consumer traffic as buyers move toward online shopping. Kohl’s is facing the same challenges.
Across the board, retail has also been struggling because consumers are spending more of their money on experiences, Gilbert said.
“If we’re talking about the better-incomed consumer, they are buying homes and furniture for their homes, autos and going on trips,” Gilbert said. “There has been a lack of newness in apparel and a transition to leisure.”
Lower gas prices have had a positive impact on sales at lower-end retailers, such as J.C. Penney, Ross Dress for Less and TJ Maxx.
“Kohl’s should be benefiting as well, but J.C. Penney could be taking that away,” Gilbert said.
Kohl’s has 1,166 stores in 49 states, up from 1,163 at the end of the third quarter last year.
Bon-Ton operates 270 department stores in 26 states under the Bon-Ton, Bergner’s, Boston Store, Carson’s, Elder-Beerman, Herberger’s and Younkers brands.
