Kohl’s better than expected quarters probably do nothing to silence activist problems

Kohl’s (KSS) seems to stay in their own world despite the arrival of new activist investors trying to shake up the struggling department store outside the mall.

Kohl’s investors should therefore expect that this brewing saga will play a good part with a result that is far from certain.

Kohls said on Tuesday that fourth-quarter sales fell 10.1% year-on-year to $ 6.1 billion as retailers continued to roll out of the COVID-19 pandemic. Operating profit was $ 316 million, a decrease of 21% compared to a year ago.

For the full year, Kohl’s sales decreased by 20% to $ 15.9 billion. The company reported an operating loss of $ 262 million. Using a tax benefit of $ 1.15 per share, Kohl managed to beat Wall Street’s earnings estimates for the quarter.

  • Total sale: $ 6.1 billion against $ 5.9 billion

  • Adjusted diluted EPS: $ 2.22 against $ 0.98

  • Full year 2021 Guidance: Mid-teens percentage sales increase and $ 2.45 to $ 2.95 in earnings per share

Shares rose 1% on Tuesday, as Kohls said it would reintroduce its dividend (to 25 cents per share) and repurchase $ 200 to $ 300 million in stock this year.

A Kohls spokesman struck a very positive note after what was a challenging quarter and year.

“Kohls is extremely confident in the company’s vision,” Kohls spokeswoman Julia Fennelly said in an email on Tuesday morning. “Kohls delivered strong initial progress toward its strategy over the past two quarters and is positioned to provide a multi-year improvement in its sales and operating margin. Kohls will also resume its capital allocation strategy in 2021.”

The rosy comment is unlikely to sit well with Kohl’s new activist investors. In fact, they may be encouraged to push harder for change at a retailer that is so resilient to change and lacks financial implementation.

MIRAMAR, FLORIDA - JULY 16: A view outside a Kohls store on July 16, 2020 in Miramar, Florida.  Some large US companies require masks to be worn in their stores when they enter to control the spread of COVID-19.  (Photo by Johnny Louis / Getty Images

MIRAMAR, FLORIDA – JULY 16: A view outside a Kohls store on July 16, 2020 in Miramar, Florida. Some large US companies require masks to be worn in their stores when they enter to control the spread of COVID-19. (Photo by Johnny Louis / Getty Images

The activist group that attacked Kohls revealed last week includes Macellum Advisors, Ancora Holdings, Legion Partners Asset Management and 4010 Capital. They now control a total of 9.5% of the shares in Kohls.

The group nominated nine people to Kohl’s already huge 12-person board.

They collectively blamed Kohls for “poor retail driving, excessive leadership compensation”, a “long-standing board with insufficient retail experience” and “systemic inability to achieve stated goals.”

A source familiar with the matter tells Yahoo Finance that the pages have not been hit since the campaign was launched and the two are far apart on a compromise.

Kohl’s spokeswoman Fennelly did not immediately return a request for comment from Yahoo Finance if Kohl’s leadership had met with activists. Later in the day, Fennelly emailed the following statement to Yahoo Finance:

“See below what is consistent with what we have said:

Since the beginning of December, the company and selected board members have had several meetings with the activists. It was hoped that these meetings would lead to a constructive solution. The company is open to finding common ground with the activists, but only if it is in Kohl’s shareholders’ best interests. “

The activists – who most recently collaborated in 2019 to shake up and then perform terrible Bed Bath & Beyond (BBBY) – seems to be well placed in their efforts. While Kohl is has received favorable headlines for its partnerships with Amazon (AMZN) (for return in store) and recently the cosmetics giant Sephora, the company has simply not delivered on several fronts.

Operating performance is more disappointing given Kohl’s pure-play rivals such as JC Penney and Macy’s have closed hundreds of stores over the past five years. Theoretically, it should have driven Kohls’ market share (something suggested in the letter).

It has not happened.

Kohl’s shares have fallen by 15% over the past two years, dragging down the S & P 500’s 39% gain. The Target share has soared by 142% during that time. The TJX company’s shares increased by 30%. Kohl’s operating margin was 1.62% in 2020 (reflecting operating profit of $ 262 million), a sharp decrease from 8.09% in 2015. Kohl’s management has set a target for operating margins of 7% to 8%.

Brian Sozzi is an editor by and large anchor on Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and again LinkedIn.

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