Kohl’s Corp.: Are Separate Dot-com and Store Companies in the Cards?



Kohl’s Corp.: Are Separate Dot-com and Store Companies in the Cards?

While splitting apart the brick-and-mortar and web business does add complexity, people who have looked at the issue closely argue that the two sides of the business can still work well together.

Will Kohl’s Corp. be the next retailer pushed to spin off its dot-com into a separate company? Financial sources say Kohl’s, with its underperforming stock, is expected to fall under pressure from activist investors later this year to spin off its e-commerce operation, mirroring what the Hudson’s Bay Co. has already done with its Saks Fifth Avenue, Saks Off 5th and Hudson’s Bay divisions, and what Macy’s Inc. is also being pushed to do. “Nothing is actually happening now at Kohl’s, but will later this year,” one financial source told WWD. “It makes a ton of sense for Kohl’s.” “Shareholders are in contact with the board of Kohl’s to at least evaluate a spin-off for the same reasons that Jana Partners is pressuring Macy’s to spin off its e-commerce. It’s just as viable with Kohl’s.” Investors have seen Kohl’s stock price languish recently and believe that taking the dramatic and complicated step of separating the dot-com and brick-and-mortar store operations would bring greater value to the business. Kohl’s stock is trading at around $47, was over $64 last spring, and has ranged from around $30 last year to more than $80 in the fall of 2018. The stock wasn’t helped in September when Bank of America slashed its investment recommendation for the retailer by two levels, citing supply chain issues. Bank of America placed an “underperform” rating on the stock, down from “buy.” Bank of America reduced its price target for Kohl’s stock down to $48 from $75.

Still, a stock price doesn’t always reflect the strength of a retailer’s operations. At Kohl’s, there have been significant merchandising advancements, including rolling out Sephora online and in stores this year as well as bolstering casual and active offerings with leading brands like Nike, Adidas, Cole Hahn, Calvin Klein, Tommy Hilfiger and Lands’ End, and emphasizing inclusivity in the product offerings. They’re widely seen as positive maneuvers sharpening the Kohl’s brand identity and providing a simpler and more relevant shopping experience. E-commerce at Kohl’s is estimated at around 30 to 35 percent of the total volume, though in the fourth quarter last year, it was north of 40 percent of sales. This year, with most Americans vaccinated against COVID-19, many are inclined to return to shopping in stores, meaning some business would shift back to brick-and-mortar retail.

Kohl’s generated $15.96 billion in total sales in 2020 and $19.97 billion in 2019. Kohl’s, a public company, could spin off its dot-com business through an initial public offering, or a carve out in some other way. The company could sell a big chunk of the e-commerce operation and use the money to buy back stock, pay down debt and invest in dot-com for growth. In April, Kohl’s entered into an agreement with activist investors fighting for fresh blood on the retailer’s board. Two independent directors nominated by the activist group — Margaret Jenkins and Thomas Kingsbury — were put on the board. An additional independent director identified by Kohl’s and agreed to by the investor group, former Lululemon chief executive officer Christine Day, also joined the board. The activist group was led by Macellum Advisors GP LLC, along with Ancora Holdings Inc.; Legion Partners Asset Management LLC, and 4010 Capital LLC. At the time, the group collectively owned 9.3 percent of Kohl’s outstanding common stock, including options. On Thursday, Macellum would not comment on Kohl’s and Kohl’s did not return a request for comment. Along with last spring’s pact, the investor group agreed to abide by certain customary standstill provisions until 30 days prior to the close of the nomination window for the company’s 2022 annual shareholder meeting. The settlement would have to expire before the investors could act again. Opinions are mixed on whether separating a retailer’s dot-com and store operations into separate companies is a good strategy. Pureplay e-tailers have generated larger stock market valuations than those with