Kohl’s takes aim at Macellum’s track record in latest shareholder letter

Kohl’s headquarters
Kohl’s headquarters in Menomonee Falls.

Last updated on April 14th, 2022 at 01:26 pm

Menomonee Falls-based Kohl’s Corp. is taking aim at the track record of activist investor Macellum Capital Management as the back-and-forth between the two sides continues ahead of the retailer’s upcoming annual meeting in May.

Macellem, which owns around 5% of Kohl’s stock, has been pressuring Kohl’s to improve performance or consider a full sale of the company. Kohl’s has acknowledged receiving indications of interest from potential buyers and engaged with at least 20 parties in a potential sale process. However, Macellem has questioned whether Kohl’s and its board are committed to conducting a robust sale process.

The hedge fund has nominated its own slate of directors for the Kohl’s board. Shareholders will have a chance to vote on either the Macellum or Kohl’s nominees at the company’s annual meeting in May.

The two sides have gone back-and-forth since January over the future direction of Kohl’s. In his most recent letter to shareholders, Macellum chief executive officer Jonathan Duskin said his firm had “never seen a corporate leadership team operate in a more defensive and insular manner when many shareholders seem very supportive of a sale and various suitors have expressed interest.”

Duskin asked the Kohl’s board to address the status of the sales process, when the company planned to gather final bids, if shareholders would be informed of the bids before voting on the next board, if Kohl’s had directed its bankers to canvas the entire market, if there were any pre-conditions to dissuade potential buyers, if shareholders would get to vote on the bids and if the annual meeting would be delayed to accommodate the sale process.

In a letter mailed to shareholders on Monday, Kohl’s said Macellum’s slate of nominees “has inherent and dangerous flaws.” It added that Jonathan Duskin, Macellum’s chief executive officer, has “a short-term approach that threatens to destroy the value of your investment.”

The Kohl’s letter did not directly address the questions Duskin raised in his April 4 letter. Instead, it generally spotlighted the qualifications and background of its slate of proposed board members.

Kohl’s also highlighted that six of the 10 Macellum nominees have never served on a public company board, none have been on a retail board for a similar size company and only one has technology, e-commerce or digital experience.

“Additionally, half of Macellum’s slate has close professional ties to Macellum. Instead of selecting a strong, independent slate, Mr. Duskin evidently hand-picked his nominees knowing that, if elected, their proximity to Mr. Duskin would amplify his hedge fund’s short-term agenda, including a sale at any price,” the letter says.

Kohl’s also took issue with Macellum’s previous activist investor campaigns, contending its “track record of value creation leaves much to be desired.” The company specifically highlighted Macellum’s efforts with Bed Bath & Beyond, Big Lots and Citi Trends.

Kohl’s pointed to Macellum statements pledging to “stabilize and grow sales” and “quickly prioritize increasing profitability” at Bed Bath & Beyond, but noted sales and operating margins have declined since four Macellum directors joined the company’s board in 2019.

For the nine months ending Nov. 27, 2021, Bed Bath & Beyond sales dropped to $5.8 billion from $6.6 billion the prior year. Gross profit margins had slipped from 34.7% to 32.7%, but the company’s operating loss had narrowed from $313.2 million to $242 million.

Kohl’s said the company had seen a 34% decline in total shareholder returns over the past year.

Kohl’s also highlighted the case of Big Lots, where Macellum pushed the company to pursue a sale-leaseback of its real estate similar to what it has advocated for Kohl’s. Big Lots did sell four distribution centers for $725 million in June 2020. Kohl’s says Big Lots sales and operating margins have declined since the deal. Big Lots had net sales of $6.2 billion in 2020 compared to $6.15 billion in 2021. Operating profit in 2021 was $239.8 million compared to $856.5 million in 2020. The 2020 figure includes a $463 million gain on the sale of the distribution centers, leaving around $393 million in operating profit.

Citing Bloomberg, Kohl’s also pointed out that the sale-leaseback “ thwarted a possible buyout by Apollo Global Management.”

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Arthur covers banking and finance and the economy at BizTimes while also leading special projects as an associate editor. He also spent five years covering manufacturing at BizTimes. He previously was managing editor at The Waukesha Freeman. He is a graduate of Carroll University and did graduate coursework at Marquette. A native of southeastern Wisconsin, he is also a nationally certified gymnastics judge and enjoys golf on the weekends.

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