The timing of Kohl’s statement on Wednesday raises a number of pertinent questions, namely if the department store wants to sell itself—and whether it can fetch top dollar.
Contenders have been in hot pursuit of the Menomonee Falls, Wisc.-based retailer since January, when Acacia Research’s group offered to take over the company for $9 billion. In the ensuing months, rival suitors including private equity firm Sycamore Partners, Hudson’s Bay Co., Franchise Group, a Leonard Green-led private equity consortium, and a Simon-Brookfield effort—similar to their approach to plucking JCPenney from bankruptcy—have also been linked to interest in bidding for Kohl’s.
Though the chain’s board initially wasn’t interested in selling, it has to entertain all offers in the interest of serving shareholders.
Kohl’s earlier this month reported a disappointing first quarter, not unlike many of its retail peers, though the earnings miss played right into activist investor Macellum’s narrative, as the firm has criticized the retailer for holding board elections prior to sharing its latest financials. Shareholders rejected the hedge fund’s nominees and instead re-elected Kohl’s board slate. Kohl’s last week reported net income that was flat at $14 million versus a year ago, on a 5.2 percent net sales decline to $3.47 billion, thanks to steep freight and supply chain costs.
The retailer on Wednesday came out with a glowing report on its store investments and omnichannel strategy, essentially recapping March’s investor presentation. Some sources question if Kohl’s is trying to save face because it realizes the valuation it wants is unlikely to materialize.
Sources said that Kohl’s is hoping to land offers higher than the $69 or $70-a-share price tags being bandied about. Some individuals, however, say per-share bids might top out at just $64. Kohl’s estimated $7 billion in real estate assets should facilitate financing for offers on the lower end of the spectrum.
In a research note, Cowen & Co. retail analyst Oliver Chen said Kohl’s is in good shape for the upcoming back-to-school season. “We attribute the improved inventory position to Kohl’s’ supply chain optimization and early buying,” he wrote, adding that improvements in data analytics helped localize assortments and fine-tune promotions.
Chen believes the retailer “sits in a unique position to serve customers at both the premium and value ends.”
Kohl’s, per its message Wednesday, is hanging its hat on small-format stores in newer, smaller markets. It plans to open about 100 of these shrunken locations in the next four years and squeeze $500 million in sales out of this part of its fleet. It’s already piloted 20-plus of these 35,000-square-foot brick and mortars and plans to open the next ones in San Angelo, Tex., Morgantown, W.Va., Tacoma, Wash. and Lenox, Mass.
“Our strong and productive off-mall store base can continuously evolve with our customer’s expectations and demand, and we see substantial opportunities to leverage our real estate in producing long-term growth,” said Mark Griepentrog, Kohl’s chief property officer.
Last year, Kohl’s said 99 percent of its 1,165 stores were four-wall cash flow positive, with 95 percent generating more than $1 million in cash flow.
New stores designs will encourage discovery, with Kohl’s testing self-service returns and self-checkout. It’s also working on integrating store and digital technology to grow the 40 percent of digital orders that Kohl’s stores currently fulfill.
But for now, Kohl’s needs to fill the hole left behind when former chief merchant Doug Howe decamped to take the DSW president and Designer Brands executive vice president job last week, according to Walter Loeb, a former retail executive and ex-Morgan Stanley analyst.