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     Entrepreneur Kurra Bewarse Username: Entrepreneur Post Number: 3962 Registered: 05-2011 Posted From: 24.164.46.35 Rating: N/A |
Kohl's likes put to items on sale, but some PE firms want to buy the whole company (62.60 +15.76) Kohl's (KSS 62.60, +15.76, +34%) likes put to items on sale, but some private equity firms want to buy the whole company. The department store giant has been struggling with sluggish top line growth, and inflation is expected to weigh heavily on its earnings in the coming quarters. Its challenges can be blamed partly on the pandemic, but it has underperformed peers that are facing the same industry headwinds. Briefing.com profiled KSS as a YIELD Leaders idea on January 13 at $49.80 (+28%), so we are happy to see today's announcement of takeover interest. Kohl's confirmed today that it has received letters expressing interest in acquiring the company. The company did not provide further details about the overtures it has received, like which firms are involved or what the buyout prices could be. However, WSJ reported that a Starboard Value consortium was aiming to bid $64/share, and CNBC reported yesterday that Sycamore is willing to pay at least $65/share. The press release from Kohl's notably says "letters", implying that at least two offers are in play, which backs up the reporting. The company said that it will determine the best course of action and will not comment further. The prices reported would be nice premiums from Friday's close of $46.84 at 37-39%. Activist investors have been nipping at the board of Kohl's to take action for some time now. In fact, Kohl's reached an agreement with major investor Macellum in April 2021 to add two of the firm's people to its board. The company has also been enacting a strategic turnaround plan by trying to rebrand itself away from its discount model and toward focus on active and casual lifestyle products. Among recent endeavors, it reached a store-within-a-store partnership with Sephora to launch Sephora at Kohl's in a total of 850 locations by 2023, and it partnered with Amazon to allow customers to return items, which helped drive traffic to Kohl's stores. However, activist investors want more steps to be taken. For example, activist investor firm Engine Capital recently sent a letter to the board arguing that KSS should consider spinning off its successful ecommerce segment Kohls.com, which the firm thinks could fetch a $12.4 bln market cap on its own. Jana Partners is advocating for Macy's (M) to take a similar step. Another potential move Kohl's could make is to monetize some of its real estate assets. Unlike a lot of retailers, Kohl's owns a lot of the real estate in which it has stores. Kohl's could conceivably sell a lot of the land and do a lease-back with a real estate company, potentially unlocking $3 bln in cash, but Kohl's has rebuffed that idea. Bottom line, KSS has been a serial underperformer, and if its stock could not move following Q3's (Oct) huge beat, maybe it should consider a spin-off of its online unit or sell some real estate. We think taking the company private, making changes, then allowing the company to re-emerge as an IPO in a few years is just what is needed because the market is not rewarding KSS with a proper multiple. However, management has been resistant, so it may be advisable to keep hopes in check. If KSS does remain public, the main concern for its performance is supply constraints. KSS has a good amount of production coming from Vietnam, where COVID-19 shutdowns have weighed on output. To its credit, KSS says it took such risks into account when it recently increased its full year adjusted EPS guidance to $7.10-7.30 from prior guidance of $5.80-6.10. The new guidance computes to a reasonable P/E of 8.7x at the mid-point and a forward P/E of only 9.4x, so the stock is quite cheap even after today's move. |