Since he took the reins of Kohl’s Corp.
in May 2018, Chief Executive Michelle Gass entered into partnerships with Amazon.com Inc.
and Sephora, introduced new brands and strengthened its loyalty program. Yet the retailer’s stock is worth less today than it was two decades ago.
A group backed by activist hedge fund Starboard Value LP offered about $9 billion to buy the department store chain on Friday, people familiar with the matter say, after renewed pressure from another activist to shake up its board of administration and considering a sale.
Kohl’s declined to comment on the offer, which represents a 37% premium to the company’s Friday closing stock price of $46.84. The offer could encourage other suitors to come forward.
In response to the renewed push from Macellum Advisors GP LLC, which has a roughly 5% stake in the chain, Kohl’s said last week that its strategy was working, as evidenced by a 16% increase in sales during its fall term, compared to the previous year. earlier period. “Based on our performance in 2021, we are positioned to exceed our key 2023 financial targets two years ahead of schedule,” he said. The Menomonee Falls, Wis., company added that its board regularly works with advisors to assess opportunities for long-term value creation.
Mrs. Gass, a former Starbucks Corp.
executive, was hailed for her fresh perspective when she took on the CEO role at Kohl’s, telling her team to think differently and not be afraid to try new ideas.
She formed a partnership with Amazon that allowed shoppers to use Kohl stores to return goods purchased from the online retailer. Last year, she wooed Sephora away from JCPenney, where she had operated stores for more than a decade. Sephora boutiques have opened in 200 Kohl stores, with plans to expand to more than 800 locations.
Along the way, she overhauled merchandise, dropping underperforming brands such as Dana Buchman and introducing new ones including Tommy Hilfiger, Eddie Bauer and Cole Haan. She expanded the selection of sportswear from brands such as Nike Inc.,
and Under Armor Inc.
Kohl’s said in its latest quarter that active sales outpaced the rest of the business, increasing more than 25% from the year-ago period.
Ms. Gass has also simplified discounts and pricing and is renovating stores. The company is on track to repurchase $1.3 billion of stock in the current fiscal year.
Still, these moves did not improve Kohl’s business enough to satisfy some shareholders. While sales initially rose, they began to decline even before the pandemic forced retailers to temporarily close stores and keep consumers at home.
More recently, sales have started to grow again. For the three months ended Oct. 30, total revenue was $4.6 billion, down from $3.98 billion a year earlier. Revenue is still down from the same period in 2019. The company says net sales are up from 2019. Net sales exclude credit card revenue, third-party advertising on its website, unused gift cards and other items.
Kohl’s also says its operating margin reached its highest level in nine years during the last quarter.
Department stores have been particularly challenged as the pandemic approaches, having lost customers for decades to discount chains, fast fashion retailers and new online entrants.
“The measures taken by Kohl’s, while customer-friendly, are no match for the hurricane-force headwinds facing midsize department stores,” said Joel Bines, the company’s general manager. counsel AlixPartners LLP.
stocks are down nearly 45% in the past year.
And while Macy’s Inc.
performed better, it was repeatedly targeted by activists. It is currently weighing whether to divest its e-commerce business after Jana Partners LLC sent a letter to the board in October urging it to do so. In 2015, Starboard took a stake in Macy’s and pressured the retailer to sell its real estate. Macy’s rejected the idea but sold some properties and redeveloped others.
Macellum was part of an activist group that last year reached a deal with Kohl’s to add three directors to its board. Another activist, Engine Capital LP, in December urged Kohl’s to consider a sale of the business or divest its e-commerce business.
Last week’s offer was made by a group led by Acacia Research Corp., which Starboard controls. Acacia was primarily a patent holding company, before Starboard invested in the company and joined its board of directors in 2019. It now focuses on buying and improving businesses.
“It’s possible to make money with Kohl’s by doing more than just retail,” said Neil Saunders, managing director of GlobalData Retail. For example, Mr. Saunders estimates that Kohl’s real estate is worth $3 billion. Last year, the activist group that included Macellum valued real estate at $7 billion to $8 billion.
Mr. Saunders added that while such measures may produce short-term gains, they are not good for the long-term health of the company. “Retailers who sold real estate didn’t do well,” Saunders said.
Jonathan Duskin, managing director of Macellum, said many retailers don’t own their real estate and are doing very well.
Takeovers of brands by financial players have a mixed record.
The Neiman Marcus Group, Toys “R” Us Inc. and the operator of Linens ‘n Things have filed for bankruptcy after falling into debt through leveraged buyouts. Neiman Marcus has since emerged, but Linens ‘n Things is bankrupt and Toys “R” Us is operating with greatly reduced capacity. Sears Management Corp.
went into a slow decline that drove it into bankruptcy after billionaire financier Eddie Lampert took control of the chain, and now owns a handful of stores.
Others have fared better. PetSmart Inc. is proving to be one of the most successful leveraged buyouts in history, after the retailer bought the e-commerce start-up that was undermining its business. And Saks Fifth Avenue sales are on the rise after the retailer was taken private by a group of shareholders and then spun off its e-commerce business.
“Kohl needs to go faster,” Saunders said. “Management is focused on the long term and Wall Street is punishing them for it.”
—Cara Lombardo contributed to this article.
Write to Suzanne Kapner at [email protected]
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