Kohl’s CEO: Company is ‘way ahead’
Executive confident in retailer’s upward momentum, even as activists try to take over board of directors
Kohl’s Corp. CEO Michelle Gass believes her team is “way ahead” of the activist investors who are trying to take over the retailer’s board of directors.
Kohl’s reported Tuesday that its sales were down 20% in the last year as a group of activist investors say the Menomonee Fall-based retailer has “chronically underperformed.”
Gass would rather focus on recent success and the company’s long-term vision unveiled in October.
“On the activists, I can’t speculate on their motivations,” Gass said in an interview with the Milwaukee Journal Sentinel.
“But whatever their reasons, I can tell you that we’re way ahead of them.”
The executive said she is confident about the momentum her team has established to rebound sales in 2021. Kohl’s plans to grow active apparel sales to 30% of its business, increase the operating margin to at least 7% by 2023 and build a leading beauty business with its new Sephora partnership.
The retailer has rejected efforts by the investors’ group to gain control of Kohl’s board of directors. Gass and other Kohl’s executives have been in talks with the investors since late last year.
Gass and Chief Financial Officer Jill Timm made no mention of the dissident
shareholders during the company’s quarterly presentation to analysts Tuesday.
“There’s no particular upside in Kohl’s engaging the activists in public,” said David Swartz, an equity analyst who follows the company for Morningstar.
“Kohl’s doesn’t want to call more attention to the fight and they don’t want the fight to look like it’s getting nasty because that doesn’t help Kohl’s.”
The investor group has filed a preliminary proxy with the SEC with its slate of candidates for the board of directors. The group, which includes Macellum Advisors GP LLC, Ancora Holdings Inc., Legion Partners Asset Management LLC and 4010 Capital LLC, is the largest shareholder in Kohl’s. Together, they control around 9.5% of the company’s stock.
Kohl’s offered the activist investors two seats on the company board during a Feb. 6 meeting, according to records filed with the Securities and Exchange Commission. It did not appease the group.
“We have engaged in constructive dialogue,” Gass said. “We seek common ground but their response to that was last week launching a public proxy fight for nine directors and control of the board. And that is not something we support.”
The group sent another letter to shareholders Friday that said the retailer’s fourth-quarter sales and guidance for 2021 “substantiate the immediate need for change on the board.” The investors said the company has settled for a “best of the worst” strategy to perform “just slightly better than the worst companies in retail.”
Makeup of board a concern
The activists say the current board is unfit to guide a retailer like Kohl’s and note that members include Milwaukeearea CEOs from non-retail companies, John Schlifske from Northwestern Mutual and Jonas Prising from Manpower Group.
The average tenure for members of the company’s current board is around 10 years. Eight of the current board members have held a seat since before Gass became CEO in 2018.
Kohl’s expanded its board of directors in February, days before the shareholders went public with their plans and criticism of the company’s direction.
Kohl’s added Robbin Mitchell, a former Ralph Lauren executive, to the board, expanding its board to 12 directors. One of the 12 seats on the board of directors is held by Gass.
In a news release announcing her appointment, Kohl’s emphasized Mitchell’s experience and pointed out that there have been changes to the board in recent years.
“Ms. Mitchell brings extensive retail industry operating experience and expertise in areas important to Kohl’s growth strategy, including Women’s apparel, Active and Beauty,” Kohl’s said.
The retailer noted that Mitchell is the “sixth new director added since 2016 as part of ongoing program of Board refreshment.”
The company also included this statement from Peter Boneparth, chairman of the board’s nominating and governance committee:
“Robbin’s appointment, like our other Board changes in the past several years, reflects both our internal assessment of the mix of experience and skills of our Board and our ongoing dialogue with all of our shareholders as to their perspectives on our Board’s composition.”
The board has been an agent of change in recent years from Gass’ perspective, starting with the CEO succession plan that put her in charge of the company.
“We’re open to any and all ideas that are going to help us grow the business and drive shareholder value,” Gass said.
There are essentially three outcomes to the shareholder uprising: the investors could walk away, the two groups could come to an agreement or the investors could take over the board.
While the activists have said that removing Gass from her post is not a priority, that could happen if the group wins control of the board.
“That would be extremely rare where an outside group takes control of the board and leaves management in place,” Swartz said. “It’s almost impossible for it to work.”