Kohl’s Proxy Fight Victory Is Only the Beginning

After weeks of speculation and rumors, Kohl’s Corporation announced last week that it would not be going ahead with its proposed proxy fight for the sale of seven million shares. By declining to file a proposal with shareholders in support of the board, Kohl’s was able to avoid needless litigation and save more than $1 billion in legal fees.


Despite retaining more business than competitors throughout the epidemic, Kohl’s performance in the most recent quarter was disappointing when compared to rivals.

Getty Images/Jonathan Sullivan

Kohl’s KSS -5.55 percent has won the proxy war against an activist investor after a hard campaign and a poison pill. But for the department store chain, this is only the beginning.

Kohl’s shareholders rejected activist investor Macellum Advisors’ attempt to change up to ten directors on Wednesday. Beginning in January, Macellum continued its drive for reforms at Kohl’s, including a sale process, which Kohl’s later engaged Goldman Sachs to manage. On its website, the department store company claims to have met with more than 20 potential partners.

That Kohl’s was able to stand its ground is already a strong vote of confidence. Other retailers have been unable to fend off challenges to their board this year: Dollar Tree and Bed Bath & Beyond BBBY -8.80% settled with their respective activist investors in March, with both companies adding activist-nominated board members.

Despite the market’s apparent enthusiasm for private equity (Twitter and Citrix Systems CTXS -0.21% are recent examples), the market is doubtful that Kohl’s will be acquired. Kohl’s stock dropped 3% after the proxy-vote results were published, and it is currently trading below $50 per share, about where it was before Macellum Advisors launched its campaign. After word of an offer by a consortium led by Starboard Value surfaced in late January, Kohl’s stock soared to $63.71.

This all means that Kohl’s has a tough climb ahead to take its valuation back to historic levels. Despite retaining more business than competitors throughout the epidemic, Kohl’s performance in the most recent quarter was disappointing when compared to rivals. Both Macy’s and Nordstrom, for example, saw an increase in revenue in their last reported quarter (ended January) compared with two years earlier Kohl’s saw a 5% decline. The weakness, though, was in large part driven by supply-chain and inventory issues. Those had hampered deliveries of private-label products, which saw higher demand than Kohl’s planned for. The company had indicated that inventory constraints hurt sales by 400 basis points in its last reported quarter. An inflation-squeezed consumer base should be a good thing for Kohl’s in the coming quarters, given that it sells at cheaper price points than department-store peers.

Importantly, Kohl’s CEO Michelle Gass has been more experimental than others, and she seems to have a solid sense of consumer preferences. For example, its idea to build coveted Sephora outlets within its stores seems to be working. By 2025, the firm wants to expand the Sephora business to $2 billion, which would account for nearly 10% of Kohl’s estimated sales. In the next four years, it also plans to build 100 additional smaller-format shops, a concept that has proven potential in experimental runs. Kohl’s strategic approach seems to be trusted by Wall Street experts. Most analysts surveyed by FactSet assigned Kohl’s a target price over $64 a share even before news of a possible bid broke in January.

Still, with rivals seeming to be in better shape recently, Kohl’s management cannot afford to rest on its laurels.

Jinjoo Lee can be reached at [email protected]

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‘Kohl’s Win Is Only the Beginning’ appeared in the print version of the May 12, 2022, issue.

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