Shares for Kohl’s Corp. jumped in Monday morning trading as an activist investor group attempted to take control of the retailer’s board.
In an open letter to shareholders, the group — including Macellum Advisors GP LLC, Ancora Holdings Inc., Legion Partners Asset Management LLC and 4010 Capital LLC — announced that it had nominated nine candidates to the company’s board of directors. Altogether, the investors hold a 9.5% stake in Kohl’s. They suggested that the chain wasn’t adequately addressing stagnant sales and declining operating margins — issues, they said, that preceded the COVID-19 health crisis.
As of 9:30 a.m. ET, Kohl’s stock was up 8% to $57.
According to the group, Kohl’s board “lacks relevant retail expertise” and collectively owns just 0.5% of the department store’s outstanding shares, which it said was “an impediment to serving shareholder interests.” It added that the company’s top five executives, including CEO Michelle Gass, have seen their compensation increase from $20 million to $30 million over the past decade despite relatively flat sales and a drop in operating profit by 42% over the same period.
“The investor group believes Kohl’s stock price has chronically underperformed against its peers and relevant indices because the board has failed to help develop and oversee a strategic plan to respond to a rapidly changing retail landscape,” wrote the investors. “The investor group’s belief that change is necessary stems from performance of the business over the decade leading up to 2020, prior to the pandemic, and the implication for future performance, once the economy reopens, based on the systemic inability of the company to execute a plan that creates shareholder value.”
What’s more, the investors called out Kohl’s “poor retail execution and strategy,” which they said contributed to a decline in its operating income margins from 11.5% in 2011 to 6.1% in 2019. They also suggested that excess inventory, private label “failure” and a “repetitive and over-assorted” collection were some of the issues that have contributed to sluggish revenues.
“The company’s inability to gain market share despite spending approximately $1 billion a year on marketing and hundreds of millions of dollars on e-commerce fulfillment capabilities is highly disappointing,” they added. “The investor group believes that this is caused by a dated approach to merchandising and marketing that does not resonate in today’s retail landscape.”
In the 27-page letter, the group indicated that the addition of new board members can help improve sales and margins through changes in merchandising, inventory management, customer engagement and expense rationalization, as well as provide the “potential to unlock $7 billion to $8 billion of real estate value trapped on the company’s balance sheet.” It also said it hopes to drive Kohl’s stock price more than two times higher than current levels through a sale-leaseback program and a major share repurchase program.
