🛒 Will Kohl's Finally Unlock Value?

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🛒 Kohl’s: Locked Up Returns?

Zilch. That’s how much the department store chain Kohl’s (KSS) has returned to shareholders over the last ten years. Now, an activist investor wants the company to either consider a sale or separation of its online business. Will it finally manage to unlock value? (Tweet This)

The Expanding Footprint

Kohl’s was founded by Polish immigrant Maxwell Kohl who opened a grocery store in Wisconsin in 1927. It became a successful local chain in the area, and its department store was opened in 1962. A decade later, British American Tobacco (BAT) acquired a controlling interest in the company, and in 1979, the company was sold to BATUS Inc.

In January 1985, BATUS Inc. decided to sell Kohl’s Department Store and several other retail holdings. Kohl’s then Chairman & CEO William Kellogg and three other investors engineered a management buyout and acquired the company at an estimated value of $130M.

When the company went public in 1992, it had 76 stores in the Midwest. In 2001, it launched Kohls.com. Two decades of expanding footprint meant by 2020, the company was operating 1,162 stores across 49 states in the US (except Hawai’i).

Today, Kohl’s is the second-largest department store chain in the US, behind Macy’s, with annual sales of $15B. Last December, it announced a strategic partnership with Sephora – the largest beauty retailer in the world. The plan was to have 850 “Sephora At Kohl’s” stores open by 2023.

These data points aside, the shares have underperformed the S&P 500 by 305% over the past decade despite generating $11.8B in free cash flow and buying back $7B worth of shares. This is the point of contention between the management and investors whose patience is wearing thin.


Engine Capital Management, a New York-based “value-oriented special situations fund,” invests actively and passively in companies ripe for change. The fund first came into the limelight in 2014, when it urged women’s apparel retailer Ann to sell itself. After some back and forth, Ann was acquired by Ascena Retail Group for $2.15B in 2015.

The firm first took a position in Kohl’s in Q4 2020 and increased its stake in Q3 this year. Today, the firm owns 513K shares or ~1% of the company’s total equity. And it swung into action.

The hedge fund wrote a letter to Kohl’s board exhorting it to explore two alternatives to boost its languishing stock price: separation of its e-commerce business and a sale of the company.

Engine Capital believes that the company’s online business alone is worth $12.4B, a cool 40% higher than the current Enterprise Value of the entire business. All things digital nowadays command a  significantly higher valuation than their brick-and-mortar counterparts and have a substantially lower cost of capital. At least that’s how the theory goes.

The second alternative is for Kohl’s to put itself on the block. The hedge fund asserts that given the significant real estate that Kohl’s owns, there could very well be buyers who will offer a 50% premium easily to the current share price.

In response to Engine Capital’s letter, Kohl’s CEO Michelle Gass said that the company is doing due diligence after receiving the letter. Gass also went on to say that Kohl’s will do a “lot of work” to understand what the proposals mean for the business.

Kohl’s is not new to shareholder attempts to take control of proceedings. Just last April, it thwarted an attempt by Macellum Advisors to take control of the board. Eventually, Macellum was able to add a  few independent directors to the board.

Kohl’s isn’t alone. A couple of months back, Macy’s board had received a letter from activist investor Jana Partners asking the company to separate its e-commerce business and create more value for shareholders. The company has hired AlixPartners to review its business structure as a result.

Revving up the value creation engine one way or another might make Engine Capital and its brethren happy. But will the board and the management comply? That’s the $7B question.

Market Reaction
KSS ended at $51.12, down 1.92%. Shares are up 31.8% this year.

Company Snapshot 📈

KSS $51.12 -1.00 (1.92%)

Analyst Ratings (16 Analysts) BUY 44%  HOLD 44%  SELL 12%

Newsworthy 📰

Deal: Roku signs Multiyear agreement with Google to keep YouTube on streaming platform (ROKU +18.23%)

Disclosure: GameStop reveals SEC subpoena on trading activity, posts bigger-than-expected loss (GME -2.31%)

Mounting: Rent the Runway posts widening losses as subscribers remain below pre-pandemic levels (RENT -12.87%)

Later Today 🕒

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  • Broadcom Inc. Earnings (AVGO)
  • Costco Wholesale Corporation Earnings (COST)
  • Medtronic Plc Earnings (MDT)
  • Lululemon Athletica Inc. Earnings (LULU)
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  • Leslie Inc. Earnings (LESL)
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  • 7:00 PM IST: Initial Jobless Claims

Today’s Market Terminology: Bullion

Bullion refers to physical gold and silver of high purity that is often kept in the form of bars, ingots, or coins

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