After dodging a boardroom takeover and near-sale of the company earlier this year, Kohl's Corp. leadership is again facing public criticism from an activist investor.
[caption id="attachment_556517" align="alignleft" width="256"] Peter Boneparth[/caption]
In a letter to Kohl's board of directors, Ancora Holdings Group LLCcalled for the removal of chairman Peter Boneparth and chief executive officer Michelle Gass. The Cleveland-based wealth management firm argues that Kohl's needs new top leadership who have "demonstrated experience in cost containment, margin expansion, product catalog optimization and, most importantly, turnarounds," citing an unfruitful strategic review (of potential buyers), recent credit downgrade and declining sales.
Ancora owns a 2.5% stake in the Menomonee Falls-based retailer and was part of a larger group of activist investors that pushed for change in early 2021. The effort ultimately resulted in an agreement that saw Kohl's add two directors nominated by the investor group and expand its share repurchase authorization from $300 million to $2 billion. One year later, New York hedge fund Macellum Capital Management launched a similar campaign to take over the board, but shareholders ultimately voted to keep the company's incumbent directors in power.
In the 18 months since the initial agreement with the activist investor group, Ancora has engaged privately with Kohl's leadership about potential solutions for improving financial performance and driving value for shareholders, according to the letter.
"We thoughtfully withheld public critiques during this period to provide Kohl’s time to bounce back from the COVID-19 pandemic, conduct a productive review of strategic alternatives and produce a viable standalone plan that investors could rally behind. Much to our disappointment, Kohl’s has failed to deliver on each of these critical priorities under (Boneparth and Gass)," the firm wrote.
Ancora pointed to the board's decision to reject multiple purchase offers early this year and proceed with an "opaque" strategic review - which ultimately ended at the hands of a volatile financing market - as reason for the loss of "billions of dollars in equity value."
"The onus is now on management to begin executing flawlessly against a backdrop that includes high inflation, intense competition and recessionary headwinds. Unfortunately, the facts indicate Kohl’s lacks the right leadership for the exceedingly challenging period ahead – one that will require the company to reverse high-single-digit sales declines, contain capital expenditures and operating expenses, and immediately optimize fulfillment, marketing and merchandising," according to the letter, which also highlighted Gass' compensation of nearly $60 million between fiscal 2017 and 2021.
Kohl's issued the following statement Thursday afternoon: "The Kohl’s Board unanimously supports Michelle Gass and her leadership team. We remain committed to maximizing value and acting in the interests of all our shareholders by staying focused on running the business, and the Board continues to actively engage with management to navigate the current retail environment."In August, Kohl's reported second quarter earnings of $143 million, down 63% from the same period last year. Net sales were also down 8.5%. The company blamed the challenging and uncertain macroeconomic environment, high inflation and dampened consumer spending as the major contributors to its weak second quarter results and lagging sales in discretionary categories like apparel.
Along with its list of criticism, Ancora said it appreciated the opportunity to share feedback with Boneparth in recent months and praised Gass as a "talented leader" who deserves credit for striking a partnership with beauty retail giant Sephora and keeping the company afloat during the pandemic.
"We have been proud to invest in a business that maintains strong gender diversity in the c-suite, as it aligns with our recognized focus on installing female leaders in more corporate boardrooms. However, our view regarding the need for new leadership at Kohl’s is simply based on the facts," Ancora wrote.