Why Kohl’s fell 13% this week

What happened

Kohls (NYSE: KSS) can’t win to lose. Shares of the department store chain have fallen 13.1% this week from their close last Friday, according to data from S&P Global Market Intelligence, after shareholders rebuffed an attempt by activist shareholders to gain a presence at the board of directors.

The same trio of activist investors who tried to execute a turnaround at Bed bath and beyond — including two who take the direction of a chain of grocery stores SpartanNash — also tried to shake things up at Kohl’s, but all 13 existing directors were re-elected by shareholders.

Image source: Kohls.

So what

Macellum Advisors, Ancora Holdings and Legion Partners Asset Management have sought to elect nine directors to the department store’s board, alleging that management and the board are not doing enough to turn around the retailer’s business.

They had acquired a 9.5% stake in the company and wanted to install directors with more retail experience to work alongside CEO Michelle Gass. Among the ideas they had, which included increasing sales and cutting costs — two favorites few can argue with — was for Kohl’s to engage in sale-leaseback deals for its real estate assets.

However, of Kohl’s approximately 1,100 properties, he only owns 410 at the end of his fiscal year, or 35%. The rest are leased or subject to ground lease agreements, whereby a tenant leases the land on which a building is erected, but builds and owns the structure afterwards and only pays the rent for the property. Recently, the booming cafe dutch brothers announced that it is switching from bespoke leases to ground leases as it is a more favorable arrangement.

Activist investors point out, however, that under the current directors, Kohl’s has exhibited “poor retail strategy and execution” that has led to “stagnant sales, declining operating margins, a 44 % of operating profit between 2011 and 2019 and an underperforming share price.”

Gass replied that Kohl’s is already implementing many of the ideas that activist investors have been calling for.

Now what

Calls to shake up a board by activist investors typically get investors excited about the action, and Kohl’s action was no different, raising on fresh blood prospects on board. There was already a flood of interest in Kohl’s buyout from other private equity firms, but shareholder voting (often made up mostly of institutional investors, not small retail investors), put an end to it. to the idea and re-elected the existing Board of Directors.

Without this catalyst for potential growth on the table, stocks retreated.

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Rich Duprey has no position in the stocks mentioned. The Motley Fool has no position in the stocks mentioned. The Motley Fool has a disclosure policy.

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