Another Investor Is Pressuring Kohl’s to Revamp Its Business

Another investor is asking Kohl’s to make major changes to its business structure to improve profitability and shareholder value.

Macellum Advisors GP, LLC, which holds almost 5% of outstanding common shares at Kohl’s, on Tuesday sent an open letter to other shareholders to call out Kohl’s for “mismanaging” the business and “failing to implement necessary operational, financial and strategic improvements.”

The letter called out a drop in the company’s stock, which was down about 22% on Monday since April, and said Kohl’s had “produced some of the worst revenue numbers in its retail peer group since the economy began reopening in 2021.”

“We firmly believe that without significantly more change to the Board, the Company will fail to deliver acceptable value creation in the years to come,” wrote Jonathan Duskin, a managing partner at Macellum Capital Management, in the letter.

Macellum entered into a settlement with Kohl’s last year, which involved two board seats and other changes. Now, Macellum said it believes that more shareholder representation is crucial to help Kohl’s do better. The investor also said it supports a move for the company to separate its digital and brick-and-mortar businesses into two separate entities, a recently popular move among traditional department store retailers.

In response to the letter, Kohl’s said in a statement that it has “continued to engage with Macellum since the settlement” and is  “disappointed with the path they have taken and the unfounded speculation in their announcement and letter.”

The company also said its plan to transform Kohl’s and create long-term value has been working.

Kohl’s stock was up almost 5% on Tuesday morning following the release of the letter.

Macellum is not the only investor to pressure Kohl’s to make changes in recent months. In early December, investor Engine Capital LP, which owns 1% of outstanding shares at Kohl’s, asked the company to separate its physical store business from its e-commerce business. Engine also asked the company to run a market test to determine how much certain financial sponsors would pay per share for the company.

Engine complimented the company’s strong category assortment, store footprint, loyalty program, and e-commerce presence in the letter. However, the investor said it believes that management has failed to properly utilize these assets to generate the most possible value for shareholders.

“Given leadership’s failure to create value through operational excellence and strategic initiatives over long periods of time, it is time for the Board to accept the fact that the public market is not appreciating Kohl’s in its current form,” wrote Engine in the letter. “Even the most patient long-term shareholders cannot be expected to endure the punishing underperformance and perpetual value disconnect seen at Kohl’s.”

As digital sales soar in the pandemic, activist investors have been vocal about their suggestions for legacy department stores to split their e-commerce and store businesses. In October, Jana Partners LLC took a stake in Macy’s and sent a letter pressuring the retailer to split its online and store businesses to capitalize on an impressive digital growth in the last few quarters. In November, Macy’s shareholders NuOrion Advisors, LLC sent an open letter to the Macy’s board chairman asking for the formation of a “Digital Special Committee” to oversee specific proposals for its digital business.

In March, Saks Fifth Avenue’s parent company Hudson’s Bay Co. split the retailer’s website and stores into two separate businesses. According to a report, the e-commerce arm of this split has started preparations to file for an initial public offering.

A recent report in Sourcing Journal, Macy’s Inc. recently hired the person behind this split, suggesting the potential for a similar move down the line.

Kohl’s reported revenue of $4.6 billion in Q3, with a diluted earnings per share of $1.65. The company raised its full year 2021 outlook and expects net sales to increase in the mid-twenties percentage range.

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