Kohl's activist investor rips 'alarming' behavior by company
The management team and board at Kohl's has a lot more questions that need answers, contends the activist investor waging a long-running fight against the off-mall retailer.
"It was alarming to learn yesterday that the current Board appears to have withheld material information from shareholders about the state of Kohl’s in the lead-up to this year’s pivotal annual meeting," Macellum Advisors Managing Partner Jonathan Duskin in a scathing new letter. "We believe all of the Company’s shareholders should feel betrayed and outraged by the fact that the quarter’s massive earnings miss, reduced guidance and the imminent departures of two senior executives."
Macellum is a 5% shareholder in Kohl's.
Kohl's didn't immediately respond to Yahoo Finance's request for comment on Macellum's new letter.
Duskin's comments arrive after a lackluster earnings day for Kohl's.
The struggling retailer —which has been running, for months, what sources tell Yahoo Finance a flawed process to sell itself — said first quarter sales fell 5.2%. Inventory levels exploded 41% from a year ago.
Kohl's slashed its full year profit outlook to $6.45 to $6.85 a share from $7 to $7.50 a share.
The earnings whiff and warning has raised concerns that Kohl's will continue to struggle for several quarters.
"While we acknowledge the transitory nature of these headwinds," Deutsche Bank Analyst Gabriella Carbone stated, "we do think investors are wary around the level of improvement baked into second half guidance, with comparable sales implied up low single digits compared to down low single digits in 2Q and down mid single digits in 1Q, SG&A dollars improving to down low single digits year over year in second half vs. up high single digits in first half, and elevated inventory levels coming out of 1Q."
A source tells Yahoo Finance that as a result of the bad quarter, Kohl's may now be unable to sell itself. And if it does reach a deal with a suitor, it will be at a substantially lower price than if the business was sold months ago.
So in effect, Kohl's management and board is being viewed as majorly fumbling a process to maximize shareholder value.
Here is Macellum's full letter:
“This quarter’s extremely disappointing results do not change the fact that Kohl’s is a uniquely positioned retailer with tremendous long-term opportunities to increase sales, expand margins and produce superior earnings. Based on our extensive analysis of Kohl’s and the retail sector, we can say with great conviction that yesterday’s results are simply a consequence of a weak Board and management configuration leading to a flawed strategic plan and an inability to execute. Under the right oversight and leadership that has sufficient expertise and a viable strategy, we firmly believe Kohl’s will consistently deliver superior operating and financial results.
It was alarming to learn yesterday that the current Board appears to have withheld material information from shareholders about the state of Kohl’s in the lead-up to this year’s pivotal annual meeting. We believe all of the Company’s shareholders should feel betrayed and outraged by the fact that the quarter’s massive earnings miss, reduced guidance and the imminent departures of two senior executives, who presumably supported the development of Kohl’s' three-year strategy released in March 2022, were not disclosed prior to last week’s annual meeting.
If any of the current directors were aware of this material information prior to the annual meeting, their involvement in any decision to withhold the news prior to a monumental shareholder vote suggests to us a clear breach of fiduciary duty. If any of the current directors were kept in the dark and not aware of this information prior to the annual meeting, we urge this faction of the Board to retain independent counsel and begin its own investigation to understand how select directors and shareholders were so grossly misled and what recourse they have.
Either way, Kohl’s should immediately appoint three of our nominees – including a shareholder representative from Macellum – to the Board to replace three long-serving incumbents. Keep in mind that Institutional Shareholder Services, Inc., a leading independent proxy advisory firm, recommended earlier this month that shareholders vote to elect multiple Macellum nominees, including former Macy's, Inc. Chief Merchandising Officer Jeff Kantor and former L Brands, Inc. Chief Financial Officer Pamela Edwards.
At this point, we believe the current Board has forfeited its right to continue to oversee Kohl’s and review offers versus the Company’s internal plan – and it should immediately commit to accepting the highest financed acquisition offer received at the conclusion of the sale process.
We are actively exploring claims against the Board and will take legal action, if necessary, to protect our interests as a major long-term shareholder and the interests of all our fellow shareholders."
Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.
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