Kohl’s management team and board have many more questions that need answers, says the activist investor who has a long-running fight against the out-of-mall retailer.
“It was alarming to learn yesterday that the current board of directors appears to have withheld important information from shareholders about the state of Kohl’s in the run-up to this year’s pivotal annual meeting,” said the managing partner of Macellum Advisors, Jonathan Duskin, in a scathing new letter. “We believe that all shareholders of the company should feel betrayed and outraged by the lack of massive earnings for the quarter, the reduced guidance and the impending departures of two senior executives.”
Macellum is a 5% shareholder of Kohl’s.
Kohl’s did not immediately respond to Yahoo Finance’s request for comment on Macellum’s new letter.
Duskin’s comments come after a lackluster earnings day for Kohl’s.
The struggling retailer – which for months has been running what sources tell Yahoo Finance has a flawed process to sell itself – said first-quarter sales fell 5.2%. Inventory levels soared 41% from a year ago.
Kohl’s cut its full-year earnings outlook to $6.45 to $6.85 per share from $7 to $7.50 per share.
The whiff and earnings warning raised fears that Kohl’s would continue to struggle for several quarters.
“While we recognize the transitory nature of these headwinds,” said Deutsche Bank analyst Gabriella Carbone, “we believe investors are wary of the level of improvement projected in the second-half forecast, with sales comparables implying high-single-digit up from low-single-digit figures in Q2 and down mid-single digits in Q1 as SG&A dollars improve to drop to low-single digits of year-over-year in the second half versus high single digits in the first half, and high inventory levels coming out of the 1st quarter.”
A source told Yahoo Finance that due to the poor quarter, Kohl’s may now be unable to sell. And if she does reach a deal with a suitor, it will be at a significantly lower price than if the business had been sold months ago.
So, in fact, Kohl’s management and board are seen as fumbling to maximize shareholder value.
Here is Macellum’s full letter:
“This quarter’s extremely disappointing results do not change the fact that Kohl’s is a uniquely positioned retailer with tremendous long-term opportunities to grow sales, increase margins and generate superior profits. Based on our in-depth analysis of Kohl’s and the retail industry, we can say with great conviction that yesterday’s results were simply the result of a weak board and management setup, leading to a flawed strategic plan and an inability to execute it. Under the right oversight and leadership with sufficient expertise and a viable strategy, we firmly believe that Kohl’s will consistently deliver superior operational and financial results.
It was alarming to learn yesterday that the current board appears to have withheld important information about the state of Kohl’s from shareholders ahead of this year’s landmark annual meeting. We believe all shareholders of the company should feel betrayed and outraged by the lack of massive earnings in the quarter, the reduced guidance and the impending departures of two senior executives, who presumably supported the development of Kohl’s three-year strategy. published in March 2022, were not disclosed until last week’s annual meeting.
If any of the current directors knew about this material information prior to the annual meeting, their involvement in any decision to withhold the news before a monumental shareholder vote suggests to us a clear breach of fiduciary duty. If any of the current directors were kept in the dark and were unaware of this information prior to the annual meeting, we urge that faction of the board to retain independent counsel and begin their own investigation. to understand how certain directors and shareholders were so grossly misled. and what recourse they have.
Either way, Kohl’s should immediately appoint three of our nominees — including a Macellum shareholder representative — to the board to replace three longtime incumbents. Keep in mind that Institutional Shareholder Services, Inc., a leading independent proxy advisory firm, recommended earlier this month that shareholders vote to elect several Macellum nominees, including former director of Macy’s, Inc. Merchandising Jeff Kantor and former L Brands, Inc. Director Financial Officer Pamela Edwards.
At this point, we believe the current board has lost its right to continue to oversee Kohl’s offers and review the offers against the company’s internal plan – and it should immediately commit to accepting the highest funded takeover bid received at the end of the sale process.
We are actively exploring claims against the Board of Directors and will pursue legal action, if necessary, to protect our interests as a major long-term shareholder and the interests of all of our co-shareholders.”
Brian Sozzi is editor-in-chief and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.
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