Kohl’s Urged to Consider Sale and Separation from e-Commerce Side – Should You Sell Your Stock?

Plantation, Florida, USA - December 5, 2020:  Kohl's, an American department store retail chain is the largest department store chain in the United States with 1,162 stores across 49 states.
JillianCain / Getty Images

News that an activist investor wants Kohl’s to consider either a sale or a separation of its e-commerce business might not put a smile on the faces of company executives, but Wall Street sure seems to like the idea.

New York-based Hedge Fund Engine Capital LP, which owns about 1% of Kohl’s, said in a letter sent to the Kohl’s board on Sunday that the retailer should consider one of the two options to help boost the retailer’s struggling stock price.

“Given leadership’s failure to create value through operational excellence and strategic initiatives over long periods of time, it is time for the Board to accept the fact that the public market is not appreciating Kohl’s in its current form,” the letter said.

Ironically, the letter itself might have already given Kohl’s stock a lift, as its shares rose more than 2% in pre-market trading early Monday, according to Yahoo Finance.

In its letter, Engine Capital noted that since Michelle Gass took over as Kohl’s CEO in May 2018, the company’s total shareholder return is negative 10.5%, “and the stock has underperformed the S&P 500 by 90% and the Company’s peers by 19.1%.”

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As a result of this performance, Kohl’s “is currently trading at one of the lowest valuations in the public market,” the letter added.

Engine Capital also said that while Kohl’s current market cap is about $6.7 billion, its e-commerce business alone “could be conservatively valued at $12.4 billion or more” based on recent sales trends.

But while the letter made a lot of noise in the financial media, that doesn’t mean it will resonate with the people who run Kohl’s. As The Wall Street Journal reported, Gass seemed to push back against the idea of separating its e-commerce unit by saying the unit works in tandem with physical stores.

Meanwhile, Kohl’s has worked to appease investors by reinstating its dividend earlier this year and increasing its share repurchases. The retailer also continues to spend money to boost its brand. It is investing in a new partnership with Sephora as well as another e-commerce fulfillment center and is also up-fitting more than half of its 1,000-plus stores. Last month Kohl’s beat fiscal third-quarter earnings views and raised its full-year guidance.

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Investors thinking about selling Kohl’s shares might want to reconsider, at least for now.

As of early Monday, the 21 analysts who cover the stock have an average rating of 2.4 – about halfway between “hold” and “buy.” Five analysts rate it a “strong buy,” two rate it a “buy,” 10 rate it a “hold,” and four rate it “underperform.” None have a “sell” rating on the stock.

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