Jonathan Duskin of Macellum Capital, the lead activist investor in a new campaign against Kohl’s department store, has a message for Kohl’s board of directors and the often-optimistic management team: it’s well past time to cut costs to help improve shareholder returns.
One measure that will help cut Kohl’s (KSS) costs is to eliminate the full-time flight crew and two private jets that are supposed to still “maintain,” according to a forceful letter from Duskin and his consortium of activists in the campaign released Monday. -market. .
“It’s always very difficult to find the smallest thing, but it would be better if they didn’t have these things,” Duskin told Yahoo Finance Live, referring to Kohl’s alleged flight crew and two private planes.
Kohl’s spokeswoman did not return requests for comment on the status of the alleged flight crew and two private planes.
The last time Kohl’s referenced its aircraft was in its 2019 proxy process launched on March 26, 2020 detailing how CEO Michelle Gass used the assets.
“As CEO, Ms. Gass is allowed to use Company aircraft for personal flights as well as business flights. This benefit increases the safety and efficiency of Ms. Gass travel. We believe these privileges are reasonable with based on the relatively small expense in relation to executive compensation and total benefit expenses, “Kohl said.
In 2019, Ms. Gass – who joined Kohl’s in 2013 as chief customer officer and took over as CEO in May 2018 – incurred $ 197,490 in compensation related to the retailer’s use of the aircraft, according to the filing.
“The figures shown are the incremental costs of personal use of Kohl-owned or chartered aircraft and are based on actual charter expenses or, in relation to the use of Kohl’s aircraft, the direct hourly cost of use, which includes fuel, maintenance, engine restoration cost reservations, crew travel expenses, landing and parking fees and supplies, “explained Kohl’s of Gass’s air travel expenses.
It is unclear the extent of Gass’s trip on the aircraft during the 2020 pandemic, as Kohl’s has not yet submitted its proxy statement for the year.
Duskin said such an expense does not make sense in light of Kohl’s lukewarm operating margin and Kohl’s return on investment (ROIC) performance in recent years.
“Declining gross margin in dollars is the problem and in so many different areas of SG&A [expenses]. This is a company that will tell you with a serious face that it is doing an excellent job of controlling costs and really driving cost cutting across the organization. We just don’t see that in the end result. Costs increased by $ 450 million [from 2014 to 2019, per the activist letter]. It’s kind of empty for us to have that kind of culture, and a flight crew and two private jets is another example of that, “said Duskin.
The battle begins
The activist group that attacks Kohl’s includes Duskin’s Macellum Advisors, Ancora Holdings, Legion Partners Asset Management and 4010 Capital. They now control a combined 9.5% stake in Kohl’s. The news was first reported by The Wall Street Journal.
The group appointed nine people to Kohl’s already huge 12-person council.
They collectively criticized Kohl’s for “poor retail execution”, “excessive executive compensation”, “long-term board with insufficient retail experience” and “systemic inability to achieve the goals set”.
A source familiar with the matter told Yahoo Finance that the campaign is not a “grab and kill” attack on the CEO. Instead, they would like to work with Gass to transform the company.
Duskin told Yahoo Finance Live that he would like Gass to succeed as CEO and that it would be nice to have access to a board with strong retail experience.
Kohl fired at the activists and clearly has a different view of how it is going now.
“Kohl’s is committed to maintaining a constructive engagement with all shareholders regarding the company’s strategies and perspectives. Kohl’s Board and management team have been involved in discussions with the Investor Group since early December and we remain open to new ideas that will improve our operating performance and capital allocation. However, we reject the Investor Group’s attempt to take control of our Board and stop our momentum, especially considering that we are well on our way to implementing a strong growth strategy and accelerating our performance, and we have renewed half of our board with six new independent directors since 2016, “said Kohl’s in a new statement released Monday afternoon.
A source familiar with the matter told Yahoo Finance that the two sides remain at a distance to reach an agreement.
The activists – who last came together in 2019 to shake up the then terribly performing Bed Bath & Beyond (BBBY) – appear to be well positioned in their efforts. While Kohl’s has gained favorable headlines for its partnerships with Amazon (AMZN) (for in-store returns) and, more recently, cosmetics giant Sephora, the company has simply failed to deliver on several fronts.
Operating performance is more disappointing considering that Kohl’s pure rivals, like JC Penney and Macy’s, have closed hundreds of stores in the past five years. Theoretically, this should have pushed Kohl’s market share (something suggested in the letter).
This did not happened.
Here are some statistics on Kohl for the past five years. It is important to look at pre-pandemic results because sales and profits fell off a cliff during the pandemic, like other retailers.
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The stock price over the past five years has risen 18% against a 92% gain for the S&P 500. Target stocks have gone up 161%.
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Same store sales (excluding 2020) have declined in two of the past five years, with only small gains in the other three, according to Bloomberg data
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The operating margin in the last five years (excluding 2020) reached 5.5% in 2019, compared to 8.09% in 2015, according to data from Bloomberg. Management’s target is 7% to 8%.
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Same-store sales for the fourth quarter fell 11%.
Kohl’s shares rose 6.4% in the session.
Brian Sozzi is a general editor and anchor on Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi is at LinkedIn.
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