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Kohl's Has Joined Dollar Tree, Macy's In an Uncomfortable Club

Kohl's has joined peer retailers Dollar Tree and Macy's as a target of activist investors.
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Kohl's  (KSS) - Get Kohl's Corporation Report joined peer retailers Dollar Tree  (DLTR) - Get Dollar Tree, Inc. Report and Macy's  (M) - Get Macy's Inc Report as a target of activist investors.

For the second time in as many months, the Menomenee Falls, Wis., company was the focus of an investment firm seeking changes.

The New York investment firm Macellum Advisors, which said it held nearly 5% of the retailer, in a Tuesday open letter to Kohl's shareholders said it would nominate a slate of director candidates to Kohl's board "if the status quo persists."

The board and management "have spent another year materially mismanaging the business and failing to implement necessary operational financial and strategic improvements," Macellum said. 

This contributed "to a 22% share price decline from the point in which we settled with Kohl's for two director designees in April 2021."

"Even using a historically low [price-to-earnings] multiple of 7 times to 8 times, our analysis indicates a properly optimized balance sheet -- e.g., by monetizing $4 billion of its real estate and returning the proceeds to shareholders through a buyback program -- could translate to at least $100 per share," the investor said.

Kohl's Retorts: Strategy 2 Years Ahead of Plan

Kohl's snapped back at Macellum, saying it was "disappointed with the path they have taken and the unfounded speculation in their announcement and letter. ...

"Our strategic plan to transform Kohl's into the leading omnichannel destination for the active and casual lifestyle continues to gain traction. Our third quarter 2021 performance demonstrates continued progress: Net sales increased 16%, beating expectations, due to strong performances across both stores and digital. ...

"Based on our performance in 2021, we are positioned to exceed our key 2023 financial goals two years ahead of plan. ...

"Our recently refreshed Board has the right mix of fresh perspectives, industry and financial expertise and institutional knowledge."

Engine Capital Revved Up Kohl's Proposals

In early December Engine Capital, also a New York investment firm, urged Kohl's to consider selling itself or separating out its e-commerce business.

Engine Capital said at the time that it owned about 1% of Kohl's.

The firm said that the retailer had underperformed the S&P 500 and its retailing peers. "Our own due diligence leads us to believe there are financial sponsors who will be able to pay a significant premium of 50%, or at least $75 per share," for the company, Engine Capital said at the time.

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Kohl's responded then that the board and management examine all opportunities to maximize value for holders, The Wall Street Journal reported. And Kohl's said that its strategy was gaining traction.

Dollar Tree and Mantle Ridge

In December the activist investment from Mantle Ridge proposed a full new slate of directors to Dollar Tree’s board.

The New York firm, which Reuters reported called for a review of the retailer's business strategy, also was calling on the retailer to consider hiring Richard Dreiling, former CEO at Dollar General  (DG) - Get Dollar General Corporation Report, as a senior executive.

Mantle Ridge in December reported that it held 5.7% of Dollar Tree.

Dollar Tree's board is up for reelection at the 2022 annual meeting, Reuters reported.

Dollar Tree had responded hard to Mantle Ridge. The retailer said it met with the firm and "Mantle Ridge was unable to articulate ways to improve our business and strategy, and instead came with outdated information and with a predetermined settlement demand."

The board "is unanimous that Mantle Ridge’s demand is unwarranted, especially given our increasingly strong performance from our strategic initiatives underway," Dollar Tree said.

On social media, some consumers are grumpy about DLTR's decision to raise prices.

Macy's Urged to Sell E-Commerce Unit

In November, Macy’s said it was working with the consultants AlixPartners to review its business structure, Reuters and other services reported

The move came a month after the New York activist hedge fund Jana Partners urged the Cincinnati department store chain to sell its e-commerce business.

Jana said in October that Macy’s could double its share price if it separated out the e-commerce business.

In a presentation reported by Bloomberg, Jana said that Macy's could follow the lead of Saks Fifth Avenue. Saks parent Hudson’s Bay spun out the retailer’s e-commerce business.

The idea behind such a spinout is that investors can independently evaluate the brick-and-mortar and online businesses and decide where they might get the best returns.

Online shopping has jumped in recent years. And for periods during the pandemic, it was all many people could do since stores closed during lockdowns.

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