Kohl's Corp (KSS) - Get Kohl's Corporation Report shares jumped higher Monday as the retailer faced renewed pressure from activist investors to consider separating its e-commerce division from its legacy business.
Activist hedge fund Engine Capital LP has asked Kohl's management to consider the sale or the separation of the e-commerce division, arguing in a letter to Kohl's management it could be valued as high as $12.4 billion -- a near 70% premium to the Friday closing value for the entire group.
Kohl's said digital sales rose 6% from last year over the third quarter, and were up 33% from 2019 levels, with CEO Michelle Gass telling investors on November 18 that digital and brick-and-mortar retail "reinforce each other, together delivering an exceptional customer experience through a seamless omnichannel integration of offerings and conveniences."
"Given leadership’s failure to create value through operational excellence and strategic initiatives over long periods of time, it is time for the Board to accept the fact that the public market is not appreciating Kohl’s in its current form," the letter stated. "Even the most patient long-term shareholders cannot be expected to endure the punishing underperformance and perpetual value disconnect seen at Kohl’s. This is why we are urging the Board to publicly commit to conducting a full review of strategic alternatives."
Kohl's shares were marked 9% higher in mid-day trading Monday trading to change hands at $52.90 each, a move that would stake the stock's year-to-date gain to around 36.5%, firmly ahead of the 18.5% gain for the S&P 500 Retailing Index and just in front of the 23.8% gain for the broader S&P 500 benchmark.
"The Kohl’s board and management team continuously examine all opportunities for maximizing shareholder value,' the company said in a statement email to TheStreet. "Our strong performance this year demonstrates that our strategy is gaining traction and driving results. We appreciate the ongoing dialogue we are having with our shareholders and value their input and perspectives."
Kohl's posted much stronger-than-expected third quarter earnings of $1.85 per share last month, on revenues of $4.3.7 billion, while raising its full-year earnings guidance to between $7.10 to $7.30 per share, amid what Gass called an ongoing effort to "transform Kohl’s into the leading destination for the active and casual lifestyle."
Engine Capital, however, argued that Kohl's "trades at a massive discount to intrinsic value and its strategy has not resonated with the public market", adding that it thinks there are "financial sponsors who will be able to pay a significant premium of 50%, or at least $75 per share", for the Menomonee Falls, Wisconsin-based retailer.