Jonathan Duskin of Macellum Capital, the main investor in a new campaign against Kohl’s, has a message for Kohl’s long-term management and often overly optimistic management team: it’s far beyond the time to reduce costs to improve shareholder returns. .
One measure that will help cut Kohl’s (CSS) costs is to eliminate the full-time flight crew and two private jets, according to a scathing 27-page letter, Duskin and his consortium of activists in the campaign released Monday. .
“It’s always very difficult to find the smallest thing, but it would be better if they did not have the things,” Duskin told Yahoo Finance Live, referring to Kohl’s alleged flight crew and two private jets.
A Kohl spokesman did not return requests for comment on the status of the alleged flight crew and two private jets.
The last time Kohl referred to his plane was the 2019 power of attorney dossier released on March 26, 2020, which sets out how CEO Michelle Gass used the assets.
“As CEO, Ms. Gass may use the company’s aircraft for personal flights as well as business flights. This benefit increases the safety and efficiency of Miss Gass’s travel. We believe these benefits are reasonable given the relatively small a. expenditure in relation to the executive salaries and our total benefit expenses, ”said Kohl.
In 2019, me. Gass – who joined Kohl’s as chief customer officer in 2013 and took over as CEO in May 2018 – made a fee of $ 197,490 for the use of the retailer’s aircraft.
“The amounts shown are the increasing cost of personal use of Kohl’s or leased aircraft, and are based on the actual rental cost or, in relation to Kohl’s use, the direct cost per hour, which includes fuel, maintenance, reserve cost for engine costs, travel expenses for crew, landing and parking fees and supplies, ”explained Kohl’s van Gass’ air travel expenses.
It is unclear about the extent of Gass’s trip during the pandemic in 2020, as Kohl has not yet submitted his power of attorney for the year.
Duskin said such an expense does not make sense given Kohl’s lower operating margin and ROIC (Return on Investment Capital – ROIC) performance over the past year.
‘Falling gross margin dollars are the problem and in so many different areas of SG&A [expenses]. This is a business that will tell you with a straight face that they are doing an excellent job of controlling costs and that they can really save the costs of the organization. We just do not see it to the bottom line. Costs increased by $ 450 million [from 2014 to 2019, per the activist letter]. It strikes us that there is that kind of culture, and a flight crew and two private jets are another example of that, ‘Duskin said.
The fight begins
The group of activists attacking Kohl’s includes Duskin’s Macellum Advisors, Ancora Holdings, Legion Partners Asset Management and 4010 Capital. They now have a combined 9.5% stake in Kohl’s. The news was first reported by The Wall Street Journal.
The group nominates nine people in Kohl’s already enormous council for twelve people.
They jointly looted Kohl for ‘poor retail performance’, ‘excessive compensation of executives’, ‘a long-standing council with insufficient retail experience’ and ‘a systemic inability to achieve stated objectives.’
A source familiar with the matter told Yahoo Finance the campaign was not an ‘attack and kill’ on the CEO. Rather, they want to work with Gass to turn the business around.
Duskin told Yahoo Finance Live he would like Gass to succeed as CEO, and it would be good to have access to a board with strong retail experience.
Kohl has fallen back on the activists and clearly has a different view of how things are going at the moment.
“Kohl’s is committed to maintaining constructive engagement with all shareholders regarding the strategies and prospects of the company. The Kohl’s board and management team have been in talks with the Investor Group since early December and we remain open to new ideas that will improve our operating performance. However, we reject the investor group’s attempt to take control of our board and disrupt our momentum, especially as we are well on our way to implementing a strong growth strategy and accelerating our performance, and we have the “Half of our board has been refreshed with six new independent directors since 2016,” Kohl said in a new statement released Monday afternoon.
A source familiar with the matter told Yahoo Finance that the two parties remain far apart to reach a compromise.
The activists – who last collaborated in 2019 to defraud Bed Bath & Beyond (BBBY) and then perform terribly – appear to be well placed in their efforts. Although Kohl’s received favorable news for its partnerships with Amazon (AMZN) (for store returns) and the recent cosmetics giant Sephora, the company simply did not deliver in several areas.
The operating performance is more disappointing, as Kohl’s pure competitors such as JC Penney and Macy’s have closed hundreds of stores over the past five years. Theoretically, this should push the market share to Kohl (something suggested in the letter).
That did not happen.
Here are some statistics about Kohl over the last five years. It is important to look at the results before pandemic, because sales and profits fell off a cliff like another retailer during the pandemic.
-
The share price has risen by 18% over the past five years, compared to the S&P 500 by 92%. The target shares rose by 161%.
-
Sales in the same store (excluding 2020) have declined in two of the past five years, with only small gains in the other three, according to Bloomberg data
-
The operating margin over the past five years (excluding 2020), according to Bloomberg data, reached 5.5% in 2019, from 8.09% in 2015. Management’s target was 7% to 8%.
-
Sales of the same stores in the fourth quarter fell by 11%.
Kohl’s shares rose 6.4% during the session.
Brian Sozzi is a general editor and anchor by Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and so on LinkedIn.
Find the latest business and finance news here.
What’s hot about Sozzi:
Watch Yahoo Finance Live Programming Verizon FIOS channel 604, Apple TV, Amazon Fire TV, Roku, Samsung TV, Pluto TV, and Youtube. Start Yahoo Finance Online Twitter, Facebook, Instagram, Flipboard, SmartNews, LinkedIn, en reddit.