Ancora Sends Letter to the Board of Directors of Kohl’s Regarding the Need for a New Chairman and Chief Executive Officer with Turnaround Experience
September 22 2022 - 8:00AM
Business Wire
Believes the Company’s Botched Strategic
Review, Credit Downgrade, Dramatic Decline in Sales, Elevated Costs
and Poorly Received Standalone Plan Have Placed Kohl’s on a
Dangerous Trajectory – With Share Price Down 45% Over the Past
Year
Contends the Board’s Actions Have Created an
Environment in Which CEO Michelle Gass is No Longer Ideally Suited
to Lead Kohl’s to Long-Term Value Creation
Urges the Board to Appoint a New Chairman
and Announce a CEO Succession Plan That Accounts for Interviewing a
Diverse Group of Qualified Candidates with Experience Turning
Around Retailers
Ancora Holdings Group, LLC today announced that it has sent the
below letter to the Board of Directors of Kohl’s Corporation (NYSE:
KSS).
***
September 22, 2022
Kohl’s Corporation N56 W17000 Ridgewood Drive Menomonee Falls,
WI 53051 Attn: The Board of Directors
Members of the Board of Directors,
Ancora Holdings Group, LLC (together with its affiliates,
“Ancora” or “we”) is a long-term shareholder of Kohl’s Corporation
(“Kohl’s” or the “Company”), with a beneficial ownership position
of approximately 2.5% of the Company’s outstanding shares. Since
collaborating with you on an incremental refresh of the Board of
Directors (the “Board”) in early 2021, we have spent nearly 18
months privately engaging with leadership to share recommendations
for reversing the Company’s sustained underperformance and
unlocking value for long-suffering shareholders. We thoughtfully
withheld public critiques during this period to provide Kohl’s time
to bounce back from the COVID-19 pandemic, conduct a productive
review of strategic alternatives and produce a viable standalone
plan that investors could rally behind. Much to our disappointment,
Kohl’s has failed to deliver on each of these critical priorities
under Chairman Peter Boneparth (who has been a director for nearly
15 years) and Chief Executive Officer Michelle Gass (who has been a
c-level leader for nearly a decade).
If the Boneparth-led Board remains
firmly committed to its preferred standalone path, we contend that
Kohl’s needs new leadership with demonstrated experience in cost
containment, margin expansion, product catalog optimization and,
most importantly, turnarounds. We appreciate that
Chairman Boneparth has allowed us to share private feedback with
him in recent months. We also want to underscore that Michelle
Gass, the Company’s current Chief Executive Officer, is a talented
leader who deserves credit for establishing an innovative
partnership with Sephora USA, Inc. and holding the organization
together during the pandemic. We have been proud to invest in a
business that maintains strong gender diversity in the c-suite, as
it aligns with our recognized focus on installing female leaders in
more corporate boardrooms.1 However, our view regarding the need
for new leadership at Kohl’s is simply based on the facts.
During the Boneparth era, the Board has
created an environment in which Ms. Gass is no longer
well-positioned to lead. The Board’s decisions to reject
multiple indications of interest in the $64-$65 per share range in
the winter and then proceed with an opaque strategic review
throughout the spring – as financing markets gradually deteriorated
– have destroyed billions of dollars in equity value and painted
the Company into a corner. With a failed review of alternatives and
recent credit downgrade now casting shadows over what is a
shrinking business, we estimate that Kohl’s has begun to trade at a
steep discount to its liquidation value. The onus is now on
management to begin executing flawlessly against a backdrop that
includes high inflation, intense competition and recessionary
headwinds. Unfortunately, the facts indicate Kohl’s lacks the right
leadership for the exceedingly challenging period ahead – one that
will require the Company to reverse high-single-digit sales
declines, contain capital expenditures and operating expenses, and
immediately optimize fulfillment, marketing and merchandising.
It gives us no satisfaction to note that Kohl’s has produced
negative total shareholder returns (“TSR”) over every relevant
horizon:2
1-Year
3-Year
5-Year
Since 2021 Settlement
Since Gass Appointment as
CEO-Elect
Since Boneparth
Appointment
-43.78%
-39.61%
-22.81%
-49.33%
-24.71%
-11.38%
Although Kohl’s has cited the pandemic as a pretext for recent
performance issues, this defense does not hold up. The fact is that
Ms. Gass has been a c-level leader at Kohl’s since 2013 – and TSR
is negative over that period as well. Additionally, as Kohl’s has
languished coming out of the pandemic, many retail peers have
recovered and seen their sales dramatically increase over the past
12-18 months.
As the Board hopefully takes time to assess our recommendation,
we urge it to consider some other germane facts:
- Kohl’s has had an unsettling level of c-suite turnover in
recent quarters as sales have declined, indicating suboptimal
personnel selection on the part of Ms. Gass. We are also dismayed
that the Board chose to not disclose the recent departures of
certain senior executives, including the Company’s Chief
Merchandising Officer, until after the 2022 Annual Meeting of
Shareholders (the “Annual Meeting”).
- Kohl’s’ most recent strategic plan received a very poor
reaction from the market when it was announced on March 7, 2022,
suggesting that Ms. Gass is not commanding the trust of the
investment community.
- Kohl’s has recently failed to keep up with peers like Macy’s
Inc. and Dillard’s Inc, with its net sales and same store sales
declining as costs remain elevated. Similar to how it handled
recent executive departures, the Board did not disclose a material
financial miss prior to a critical shareholder vote at this year’s
Annual Meeting. These disclosure decisions suggest to us – and
presumably other shareholders – that the Board has been focused on
maintaining control above all else.
We would also be remiss not to note that Mr. Boneparth and his
fellow directors deemed it appropriate to award Ms. Gass nearly $60
million in compensation between fiscal year 2017 and fiscal year
2021, with her most recent fiscal year compensation being more than
1,000x that of the median employee’s compensation. We recognize
that corporate leaders need to be compensated in line with market
norms and their peers. Nonetheless, given that Kohl’s has produced
years of poor returns and has started to shrink at an alarming
rate, we do not support the Board continuing to expend
shareholders’ capital on present leadership. Ms. Gass’
well-documented pedigree as a marketing and merchandising expert
does not seem as pertinent right now given Kohl’s has pressing
challenges related to its financial position, inventory levels and
operations. Looking ahead, we believe
shareholders’ capital should be utilized to compensate a new
Chairman and Chief Executive Officer that possess operating
expertise and turnaround pedigree.
In closing, we want to stress that a number of stakeholders are
responsible for the abysmal performance and immense value
destruction at Kohl’s. But the combination of the Boneparth-led
Board’s ineffective leadership and management’s poor execution, as
evidenced by the Company’s numbers, compel us to call for a new
Chairman and Chief Executive Officer at this critical fork in the
road. We urge the Board to announce a thoughtful succession plan
and run a robust search process that accounts for interviewing a
highly diverse group of qualified candidates. Ultimately, Kohl’s
needs leadership that can design and implement a precise turnaround
strategy to ensure the Company averts peril and starts producing
enhanced value for shareholders over the long-term.
Sincerely,
Frederick D. DiSanto
James Chadwick
Chairman and Chief Executive Officer
President
Ancora Holdings Group LLC
Ancora Alternatives LLC
***
About Ancora
Founded in 2003, Ancora Holdings Group, LLC offers integrated
investment advisory, wealth management and retirement plan services
to individuals and institutions across the United States. The
firm's comprehensive service offering is complemented by a
dedicated team that has the breadth of expertise and operational
structure of a global institution, with the responsiveness and
flexibility of a boutique firm. For more information about Ancora,
please visit https://ancora.net.
_______________________ 1 Reuters, “Analysis: Elliott, Ancora
lead hedge funds in pushing for more women on boards,” January 12,
2022. 2 TSR runs through September 16, 2022 and includes reinvested
dividends. The “2021 Settlement” refers to the Company’s April 14,
2021 settlement with Ancora and other investors, while the “2017
Appointment” refers to the September 26, 2017 appointment of Ms.
Gass as “CEO-elect” of Kohl’s and the “Boneparth Appointment”
refers to the appointment of Mr. Boneparth to the Kohl’s Board on
May 1, 2008.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20220922005234/en/
Longacre Square Partners Charlotte Kiaie / Miller Winston,
646-386-0091 ancora@longacresquare.com
Kohls (NYSE:KSS)
Historical Stock Chart
From Mar 2024 to Apr 2024
Kohls (NYSE:KSS)
Historical Stock Chart
From Apr 2023 to Apr 2024