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Kohl’s CEO Slams ‘Uninformed and Inaccurate’ Board Attacks

Kohl’s CEO Michelle Gass pushed back on activist investors Tuesday as she talked up the department store retailer’s “momentum” in a Wall Street conference call on fourth-quarter earnings.

In a Nutshell: Kohl’s reported diluted earnings per share (EPS) of $2.20 for the quarter ending Jan. 29 and $7.33 for the same full-year metric, beating Wall Street estimates and illustrating how the company’s “strategy is building momentum,” Gass said.

“Our operating margin of 8.6 percent exceeded our 2023 goal two years ahead of plan, a direct result of our efforts to restructure the business to be more profitable,” Gass added. “We continue to see a lot of value in our company. We are reinforcing our commitment to driving shareholder value by doubling our dividend and planning on repurchasing at least $1.0 billion in shares in 2022.” The board declared a quarterly cash dividend on common stock of 50 cents a share.

“We have fundamentally restructured our business to be more profitable,” she said.

Kohl’s shares jumped 3.9 percent to $57.78 Tuesday at the start of trading but closed the day at $56.80.

Gass pulled no punches in addressing the “uninformed and inaccurate commentary regarding the board’s openness to maximizing value,” a pointed reference to a pair of activist investors trying to force Kohl’s to cleave clicks from bricks or sell itself, and to install new board directors.

“We have a strategic and financial plan that will deliver substantial value,” Gass said. “The board is testing and measuring that plan against other alternatives.”

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Kohl’s has hired Golman Sachs in a process that includes “engaging with unsolicited bidders as well as proactive outreach,” she added, with more information ahead in its upcoming proxy statement.

Gass seemed to dismiss the idea of breaking stores and digital into separate-but-equal businesses. “Stores remain extremely important to our business,” she said. “The vast majority of our customers shop our stores and the stores play a central role in our omnichannel model. During the fourth quarter, more than 40 percent of digital sales were fulfilled by stores.” Macy’s board also recently put the kibosh on a similar maneuver because the risks were “too high,” given the sheer size and scale of such an operation.

Kohl’s investor day presentation on Monday will discuss strategy and key initiatives, including plans for the retailer’s women’s business, which slumped 45 percent over 2019 as supply chain constraints limited inventory, Gass said.

Active grew more than 40 percent relative to last year, with men’s, women’s and kids performing well in both national and private brands. Children’s apparel and footwear also delivered strong results in the quarter, Gass said.

Late inventory receipts meant Kohl’s lost out on some holiday sales, despite the quarter starting off strong. January foot traffic declined in light of the rapidly spreading Omnicron variant.

“We saw the best performance in categories where we had sufficient inventory, such as active, and conversely weaker results in areas with inventory challenges, like women,” Gass said. “This gives us confidence that as we improve our inventory position in 2022, we will be able to better capture customer demand and drive sales growth.”

The company plans to use some of its $850 million in capital expenditures to update store layouts by moving the active displays to the front. “By the end of 2022, more than half of our store base will have Sephora and the new elevated experience, which is an important milestone in our evolution,” Gass said.

This year, Eddie Bauer and Under Armour will feature in all Kohl’s stores, up from their presence in several hundred today. The retailer is also growing its partnerships with Columbia and Lands’ End.

“We’re focused on further growing our plus size and big and tall businesses which continue to resonate with our customers,” Gass said, with the recent additions of Tommy Hilfiger, Calvin Klein and Hurley brands driving growth in men’s.

Kohl’s is hoping to inject an element of discovery into stores with special capsules such as Draper James RSVP, premium denim from Buffalo and Levi’s SilverTab, and “dozens of emerging products and brands” giving consumers a reason to stop in.

Gass addressed inflation by saying that Kohl’s reliance on promotions and discounts gives it some leverage with pricing. Average unit retail has increased as customers purchase more of the better brands it carries.

Net Sales: For the three months, total revenue rose 5 percent to $6.50 billion from $6.14 billion a year ago. Total revenue include a net sales gain of 6 percent to $6.22 billion from $5.88 billion a year ago.

Digital sales rose 21 percent versus 2019, and were down 1 percent versus 2020. As a percentage of total sales, digital represented 39 percent in the quarter.

For the year, total revenue rose 22 percent to $19.43 billion from $15.96 billion, which included a 23 percent increase in net sales to $18.47 billion from $15.03 billion.

Earnings: Net income declined 13 percent to $299 million, or $2.20 a diluted share, from net income of $343 million, or $2.20, a year ago.

Wall Street expected adjusted diluted earnings per share of $2.12 on revenue of $6.54 billion.

For full year 2022, Kohl’s expects EPS in the range of $7.00 to $7.50, excluding any nonrecurring charges, with net sales 2 percent to 3 percent over a year ago.

Kohl’s ended the year in the black with net income of $938 million, or $6.32 cents, against a net loss of $163 million, or $1.06, in the prior year.

CEO’s Take:2021 was an important and pivotal year for Kohl’s. We accomplished a great deal strategically and financially,” Gass said. “We have great confidence in the future. We are focused on driving shareholder value and are reinforcing our commitment to returning capital to shareholders.”