The pressure is back on at Kohl’s Corp. and this time it’s from longtime shareholder Ancora Holdings Group, which owns approximately 2.5 percent of the company’s stock.
For the past 18 months, Ancora has kept its view on Kohl’s and its leadership quiet while privately communicating recommendations for reversing the trajectory of the business.
But on Thursday, Ancora sent a letter to the Kohl’s board demanding the ouster of chairman Peter Boneparth and chief executive officer Michelle Gass, stating, “We contend that Kohl’s needs new leadership with demonstrated experience in cost containment, margin expansion, product catalog optimization and , most importantly, turnarounds.”
Ancora said it collaborated with Kohl’s on some board changes in early 2021, and “thoughtfully withheld public criticism during this period to provide Kohl’s time to bounce back from the COVID-19 pandemic, conduct a productive review of strategic alternatives and produce a viable stand- alone plan that investors could rally behind. Much to our disappointment, Kohl’s has failed to deliver on each of these critical priorities under chairman Peter Boneparth, who has been a director for nearly 15 years, and CEO Michelle Gass, who has been a C-level leader for nearly a decade.” Ancora and other investors reached a settlement with Kohl’s in 2021 that saw three new directors join the board, including Thomas Kingsbury, who was previously the CEO of Burlington Stores and led the retailer to a public offering in 2014.
Ancora did characterize Gass as “a talented leader who deserves credit for establishing an innovative partnership with Sephora and holding the organization together during the pandemic. We have been proud to invest in a business that maintains strong gender diversity in the C-suite, as it aligns with our recognized focus on installing female leaders in more corporate boardrooms.”
However, the activist shareholder also wrote that Gass is “no longer well-positioned to lead” and that the board’s decisions to reject multiple indications of interest in the $64 [to] $65 per share range in the winter and then proceed with an opaque strategic review throughout the spring — as financing markets gradually deteriorated — have destroyed billions of dollars in equity value and painted the company into a corner.” In July this year, Kohl’s ended takeover talks with The Franchise Group, which made a $60 a share offer that was subsequently revised to $53 a share. Ancora also contended that Kohl’s has begun to trade at a steep discount to its liquidation value.
Earlier, Macellum Advisors, another shareholder activist, had been pressuring Kohl’s to consider selling the company and was vociferous in criticizing Kohl’s management of the business and its strategic review.
“The onus is now on management to begin executing flawlessly against a backdrop that includes high inflation, intense competition and recessionary headwinds.”
Ancora, a 20-year-old investment advisory, wealth management and retirement plan service, also pointed out that retail peers have seen sales increases coming out of the pandemic, while Kohl’s has languished and seen too much C-suite turnover, and contended that the board has been overcompensating Gass — who earned nearly $60 million between fiscal year 2017 and fiscal year 2021 — given Kohl’s performance.
The letter was signed by Frederick DiSanto, chairman and CEO of Ancora Holdings Group LLC, and James Chadwick, president of Ancora Alternatives LLC.
While Kohl’s quarterly results haven’t been the best of late — there was a 63 percent drop in income and an 8.5 percent decline in sales in the second quarter — some market observers credit Gass with sharpening the assortment and image of Kohl’s as a destination for casual and activewear and for strong values. There is also a belief that the recent changes in the mix, including the rollout of Sephora, need more time to kick in more fully.
During Gass’ tenure, several well-known name brands have been added to the assortment including Calvin Klein, Lands’ End, Cole Haan, Tommy Hilfiger, Under Armor and Eddie Bauer.
The Menomonee Falls, Wisconsin-based retailer is accelerating the opening of smaller store format locations that have successfully been piloted; introducing what it calls “zones” for diverse, female-owned and emerging brands; testing self-serve return drop-offs; testing self-checkout, and reflowing key active and casual brands in proximity to the in-store Sephora shops for better exposure. Kohl’s has a capital expenditures budget of $850 million for 2022, with more than two-thirds related to opening 400 Sephora shops and refreshing stores.
Kohl’s shares were trading down 2 percent or $0.65 to $27.25 by mid-day Thursday. Over the past 52 weeks, the stock price has ranged from a high of $64 to a low of $26.