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Investors Build Kohl’s Stakes As Activists Put Pressure On Retailer

Investors Build Kohl’s Stakes As Activists Put Pressure On Retailer

Global investors are lining up to build positions in big box department store retailer Kohl’s but the obvious question right now is why?

Last week Singapore’s giant sovereign wealth fund GIC unexpectedly confirmed that it had acquired a 5% stake in Kohl’s, taking its total holding just over that figure.

And it’s not the only one. Late last year Dimensional Fund Advisors disclosed a 5.2% stake via the Securities and Exchange Commission and Fidelity Investments affiliate FMR confirmed that it had amassed a 7.45% stake.

Furthermore, an activist hedge fund chaired by former Canadian Prime Minister Stephen Harper has been building a position and is understood to be pushing Kohl’s to sell itself. Miami-based Vision One Management Partners, a fund co-founded by Harper and Courtney Mather, has expressed concerns to the company over its future, according to reports.

So what is going on and why have these companies been building stakes in a company that, even with a small stock price boost following GIC’s announcement, has been trading broadly flat in the year-to-date at just a tad north of $27, which is less than half its price two years ago?

The answer likely goes back to its recent past and the possibility to offload the company and perhaps try to leverage the value of its real estate assets.

Kohl’s Stock Price

Kohl’s operates more than 1,100 stores across the United States and a has a retail partnership with LVMH’s beauty and cosmetics powerhouse Sephora, but its sales have been struggling and the company has come under pressure to put the for sale sign up before.

It rejected acquisition offers worth as much as $64 per share in 2022 as it held on for a bid closer to $70 per share but, after Vitamin Shoppe
VSI
owner Franchise Group
FRG
reduced its bid during negotiations, that came to nothing.

Ancora Holdings, Macellum Capital Management and Legion Partners Asset Management have been among the other activist hedge funds that have pushed for changes at Kohl’s. As a result, the company is led by former off-price chain Burlington Stores
BURL
CEO Tom Kingsbury, who joined the Kohl’s board in 2021 with backing from Macellum and Ancora.

Kingsbury has said that the retailer is shifting its focus back to its extensive store estate and overhauling its e-commerce offer, blaming the digital business for “really what’s bringing us down.”

He replaced Michelle Gass, who departed in 2022 to take the helm at denim giant Levi Strauss & Co
LEVI
.

Another underwhelming trading update in its latest financial report in November last year has increased the chances of a sale of the business.

Kohl’s Struggles For Sales

Kohl’s reported a 5.2% decrease in net sales in its third quarter, amounting to $3.8 billion, with the retailer’s comparable sales decline continuing, down 5.5%.

Gross margin increased 158 basis points to 38.9% but operating income for the quarter was $157 million, down from $200 million in the prior year period. Net income for the third quarter totaled $59 million, while for the first nine months of 2023 net sales were down 4.5% at $10.9 billion, with comparable sales down 5.0%.

That’s seemingly prompted Vision One to look at a possible sale again.

The company is led by Harper, a long-time politician who co-founded the modern Conservative Party of Canada, winning three successive elections in 2006, 2008, and 2011, plus Mather, formerly a portfolio manager for billionaire activist investor Icahn and a director at Caesars Entertainment
CZR
.

Kohl’s is the second U.S. department store operator to come under investor pressure to sell itself in recent months after Macy’s rejected a $5.8 billion bid to be taken private by investors Arkhouse Management and Brigade Capital Management, citing the offer as too low and questioning whether the bidders had the necessary financing.

Late last year Herb Kohl, the long-time Wisconsin senator and co-founder of Kohl’s, died at the age of 88. Outside of his retail stewardship, Kohl spent millions of dollars keeping his beloved Bucks basketball team in Milwaukee and served in Congress as a Democrat for 24 years.


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