Engine Capital sends letter to Kohl’s board regarding disappointing financial guidance and need to pursue sale

NEW YORK–(BUSINESS WIRE)–Engine Capital LP today announced that it has sent the letter below to the Board of Directors of Kohl’s Corporation (NYSE: KSS).

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Dear Board Members:

As you know, Engine Capital LP (together with its affiliates, “Engine” or “we”) is a long-term shareholder of Kohl’s Corporation (“Kohl’s” or the “Company”). We – and apparently much of the market – are extremely disappointed with the financial guidance presented at the company’s recent analyst day. Kohl’s had spent months building expectations around this event, including our direct interactions. Therefore, we expected to hear something so compelling that it would justify your reckless public opposition to the recent $64 per share and $65 per share offers from two credible parties.

Instead, we were disappointed by the company’s forecast for low-single-digit sales growth and mid-to-high earnings per share (“EPS”) growth over the next three years. Revenue growth is disappointing given the addition of 400 Sephora stores and billions in capital spending. EPS growth forecasts are disconcerting because they factor in $3 billion in share buybacks. Assuming $1 billion per year in share buybacks, that means the company will reduce its number of shares by 10-15% per year. If the company is guiding mid- to high-single-digit EPS growth while trimming its share count by double-digit percentages every year, what does that mean for earnings growth? It’s clear that despite all the initiatives highlighted in the 114-page analyst day presentation, earnings are falling – or flat – at best. The only reason EPS is rising is because of planned aggressive stock buybacks. Despite their best efforts, management is unable to increase the company’s bottom line. We believe this is one of the reasons the stock fell more than 12% on analyst day and seemingly dragged down other stocks in the sector.

In this context, we believe it is imperative that the Board reassess its view of the intrinsic value of the Company. We understand that Kohl’s finally launched a competitive sale process months after urging the board to do so. We remain concerned, however, that the board could reject a final offer based on an erroneous and unrealistic conclusion that it undervalues ​​Kohl’s.

In conclusion, we urge the board to let shareholders make the final assessment of a sale of Kohl’s. The board and management have overseen such value destruction over the years that we believe it is emotionally and financially conflicting to make this assessment. The best offer, whether $65 per share or hopefully higher, should be negotiated and voted on by shareholders so that the beneficial owners of the company can decide whether the offer is appropriate.

Truly,

Arnaud Ajdler

Brad Favreau

Managing Partner

Partner

About Engine Capital

Engine Capital LP is a value-oriented special situations fund that invests both actively and passively in changing businesses.

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