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Kohl’s Should Reject Short-Sighted Activism

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Sometimes, an outside perspective is just the kind of push a company needs to make much-needed changes. In Kohl’s case, it risks being a distraction.

Activist investors that control a combined 9.5% stake in Kohl’s unveiled a campaign to take control of the department-store chain’s board last month. Three of the four activist investors involved in this push—Macellum Advisors, Ancora Holdings and Legion Partners—are the same ones that successfully pushed for change at Bed Bath & Beyond in 2019. This time, the plan is a tougher sell.

For one, the investors’ argument lacks punch because Kohl’s has obviously fared better than peers in an industry that is continuously losing share. Kohl’s report on Tuesday morning affirmed this. Its net sales in the fourth quarter ended Jan. 31 declined 10% from a year earlier, exceeding analyst estimates. Not only is that better than department store peers— Macy’s saw net sales decline 19% over the same period—it is also in-line with off-price retailers, which have been the main threat to department stores in recent years. TJX Companies , which owns TJ Maxx, also saw net sales decline 10% over the same period.

Many of the observations investors have about Kohl’s are astute but come off as nitpicks because they are issues the retailer is already working on. For example, the letter calls for better inventory turnover; this was something Kohl’s had already said it began working on, and inventory turn in the fourth quarter was at a 10-year high. And while it is true that profitability has been declining over the years, the company has done a decent job of holding on to its margins despite depressed sales in 2020.

Most controversial is the activists’ push for sale-leasebacks of properties and share repurchases, moves that seem optimized for juicing short-term returns. The investor group believes Kohl’s sale-leaseback proceeds and the repurchase program together could increase earnings per share by at least 25%.

What do you think?

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