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The junkmen are coming for Kohl’s (NYSE:KSS) stock.
Source: Sundry Photography/Shutterstock.com
Since December, activist investors have been pushing the company to sell or at least spin-off its real estate and e-commerce units. The board reacted by rejecting two takeover offers and adopting a “poison pill” aimed at preventing a “hostile takeover.”
The pressure increased last month when Jonathan Duskin’s Macellum Group nominated a replacement set of directors.
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The multi-year turnaround plan by Chief Executive Officer Michelle Gass could now prove all for nothing, even though the stock is up 121% over the last two years.
Why They Want It
Retail stocks, like KSS stock, have become hot commodities lately as investors pick through the pandemic’s survivors, separating winners from almost-winners.
Discounters like Walmart (NYSE:WMT), Costco Wholesale (NASDAQ:COST) and Dollar General (NYSE:DG) all look like winners. Kohl’s looks increasingly like an almost-winner, which to activists, means it is a loser.
Placer.Ai, which tracks retail visitors, says Kohl’s foot traffic quickly rebounded to within 10% of its pre-pandemic level. Kohl’s earned $938 million, $6.32 per share, on sales of $19.5 billion during the year ending in January. It said its Christmas quarter earnings of $2.20 per share exceeded expectations.
That is not good enough for Macellum, which says stock in Target (NYSE:TGT) and TJX (NYSE:TJX) are outperforming Kohl’s. Kohl’s stock rose nearly 30% after Macellum announced its board challenge and has held half that gain even against the board’s resistance.
Can Beauty Save KSS Stock?
Before Gass, Kohl’s was known as an off-price department store focused on suburban strip malls. Gass’s hiring in 2018 was always meant to change that formula. Industry analysts now call Kohl’s an “anti-mall” for its shops-within-a-shop strategy.
Under Gass, some of Kohl’s real estate has been leased out as Planet Fitness (NASDAQ:PLNT) locations or Amazon.Com (NASDAQ:AMZN) pick-up locations. Kohl’s has also become home for full-priced retailers that had lost distribution, like Under Armour (NYSE:UAA) and LVMH’s (OTCMKTS:LVMUY) Sephora unit, which had previously been at JC Penney.
Gass now hopes the Sephora connection can save her strategy. Placer.AI says shops specializing in beauty have been a retailing bright spot lately. At an “Investor Day” event this month, Gass said she is planning to open 400 Sephora shops within Kohl’s stores in 2022. Placer.Ai says Kohl’s is seeing increased sales in the rest of its stores as a result. Gass wants to make Sephora a $2 billion business for Kohl’s. But she is still just predicting low single-digit growth for the chain.