Home Kohl’s Responds To Criticism From Activist Investor Macellum
January 19, 2022

Kohl’s Responds To Criticism From Activist Investor Macellum

Posted In: Retail Articles

Responding to a statement and a letter to shareholders from activist investor Macellum Advisors, Kohl’s Corp. issued its own statement rejecting critical points made in the Macellum correspondence.

Kohl’s insisted that it has continued to engage with Macellum on issues the investor has raised since striking a board of directors settlement with it last year. Kohl’s added that it is disappointed with the path Macellum has taken and what it called unfounded speculation in Macellum’s statement and letter.

Kohl’s declared that its strategy is producing results that are returning shareholder value, transforming the operation into the leading omnichannel destination for the active and casual lifestyle. The retailer maintained that its strategy continues to gain traction as supported by its third-quarter 2021 performance and pointed to a net sales increase of 16%, beating expectations, arising from a strong performance across the bricks and mortar and digital businesses as more evidence it is making progress. Operating margin reached a nine-year high of 8.4% and full-year EPS outlook represents an all-time high for the company, Kohls indicated.

In the statement, Kohl’s added:

“We launched several transformational brand partnerships and opened 200 Sephora at Kohl’s shops this fall. These initiatives are off to a great start, attracting new customers and increasing sign-ups for our best-in-class rewards program. Further, through our focus on inventory management, pricing and promotion optimization, sourcing cost savings, and SG&A efficiencies, we are structurally improving the long-term profitability of our business.

“Based on our performance in 2021, we are positioned to exceed our key 2023 financial goals two years ahead of plan. We remain confident in our future and have accelerated our share repurchase activity. In 2021, we continue to expect to repurchase $1.3 billion in shares, reinforcing our commitment to driving shareholder value. We will discuss our 2021 results in more detail on our earnings call on March 1, 2022.

“Looking ahead, we believe the continued execution of our strategy will position us to further improve our overall performance. We plan to share an updated financial framework and capital allocation strategy at our previously announced Investor Day on March 7.

“Our refreshed board of directors has the skills and expertise to continue driving long-term value creation.

“Our recently refreshed board has the right mix of fresh perspectives, industry and financial expertise and institutional knowledge. As part of our agreement with the Investor Group, which included Macellum, following last year’s proxy contest, we added three independent directors to the board, each with retail experience. In total, six new independent directors have joined Kohl’s board in the last three years. These new directors bring highly relevant experience from top roles at leading retail companies including lululemon, Walmart, Burlington and Kroger.

“Kohl’s Board continuously evaluates value-enhancing opportunities and is committed to maximizing value for all shareholders.

“Our board has the deep financial and industry expertise necessary to evaluate all opportunities to enhance shareholder value. The board regularly works with specialized advisors to evaluate paths that have the potential to create long-term value.

“Our board and management team will continue to aggressively pursue the best interests of all shareholders as we manage the business to increase shareholder value in both the near- and long-term.

“The company has been open to engagement with shareholders, and after discussion with a larger group of shareholders last year agreed to certain board level changes. As recently as this weekend, Macellum refused to enter a confidentiality agreement to hear about the company’s progress across operating performance metrics, strategic initiatives and capital allocation plans, and provide input on these matters as a shareholder. They have been unwilling to constructively engage. The board and management remain focused on sustained value creation. Distracting the company from this focus does not benefit shareholders.”

The major points Macellum made in its letter, as the investment firm characterized them were:

  • Last year was another lost year at Kohl’s. Macellum believes Kohl’s board of directors and executive leadership team have spent another year materially mismanaging the business and failing to implement necessary operational, financial and strategic improvements contributing to a 22% share price decline from the point in which it settled with Kohl’s for two director designees in April 2021.
  • The board appears unwilling to address drivers of long-term underperformance. Macellum questioned how the board could reject its recent offers to collaborate on a meaningful director refresh that would add retail sector expertise and shareholder perspectives to the boardroom, particularly in light of Kohl’s continued underperformance.
  • The investment firm plans to nominate a slate of director candidates if the status quo persists. Macellum intends to nominate a slate of qualified and independent candidates for election at Kohl’s 2022 annual meeting unless the board decides to collaborate with it on a director refresh and promptly implement changes to improve operational execution and optimize the balance sheet.
  • If the board won’t pursue improvements, it should explore strategic alternatives. Macellum contends that well-capitalized strategic and financial buyers could pay a meaningful premium to acquire Kohl’s.

Macellum added that value-creation potential exists in separating the company’s e-commerce and brick-and-mortar businesses.

In the event the board continues rejecting its suggestions, Macellum asserted that Kohl’s should retain qualified advisors to support an objective evaluation of the options offered as well as any offers for the company that have been made to date.

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