Activist investor describes why he's going after Kohl's (again)

Macellum Chief Executive Officer Jonathan Duskin joins Yahoo Finance Live to discuss how the activist investor is following up on proposed changes at Kohl's.

Video transcript

KARINA MITCHELL: Welcome back to Yahoo Finance. Well, activist investor Macellum Advisors is renewing a push for calls to shake things up on its board or explore a sale. Kohl's stock rising on that news. Here with more on the potential implications is Jonathan Duskin, Macellum chief executive officer, and Yahoo Finance's Brian Sozzi. Brian, this story making a lot of news.

BRIAN SOZZI: Thanks so much, Karina. And, Jonathan, good to speak with you again here.

You pulled no punches in your latest note to Kohl's, saying Kohl's is, quote, "a company without accountability and unlimited second chances." Now, I covered your first attack of Kohl's earlier last year. This is a, I would say, stepped-up tone versus them. Why so-- why so aggressive?

JONATHAN DUSKIN: Well, you know, first, Brian, thanks for having me on. And, you know, I would say I don't know that it's that much more aggressive, but I do think the facts warrant the tone. You know, it's another year, right? Let's pull back the lens a little bit, right? This is a company whose stock price is the same for two decades. It's the same as it was a decade ago.

And if you look at what happened when we ran the first campaign, you know, they claimed everything was great and the business was working and they had so many things fixed. And, you know, the woman's business was fixed, and they had this push into athleisure that they thought was great, and they fixed all these bad brands they had exited. And we said, OK, you know, in good faith, we'll stand down. We put two directors on the board, and we gave them another year.

And again, this was after failing from 2014 from the greatness agenda. It was after kind of a miserable, disastrous 2019. And we said, OK, maybe some of these things are working. They had an analyst day in October of 2020, and we said, OK, let's give them a chance.

Well, sadly, a year later I wish we weren't as right as we had been, and unfortunately I think a lot of our criticisms were accurate. The company has had one of the worst stock performances, the worst valuations, the biggest contraction in their valuation. They are one of the few retailers that hasn't been able to grow sales since-- versus 2019. When we ran our campaign before, you know, they claimed that they were the-- you know, we said the best of the worst. They were better than Macy's, and they were better than Dillard's. Now they can't even make that claim. Dillard's is up 300% since pre-COVID. Macy's is up over 100% since pre-COVID, and Kohl's is down. Both Dillard's and Macy's experienced significant sales growth since 2019, and Kohl's can't get any positive traction in same-store sales versus 2019.

So it has been a pretty-- unfortunately, a pretty bad year, and we think they need help, and we're here to help. And I think that's what often gets misconstrued in these campaigns. We're really just here to provide retail expertise and shareholder perspective in the boardroom and, you know, really just try to help improve this company and an asset that we think could be significantly more valuable.

BRIAN SOZZI: Jonathan, is this a-- is this a CEO slash management team problem with Kohl's or a board problem? Because you do talk about in your letter, you think the management team and the board just lack the ability to understand the competitive dynamics in the retail industry.

JONATHAN DUSKIN: You know, Brian, it's a fair question, and it's always hard to tell, right? You know, being an activist, you're always on the outside and you're looking in. I'm not in the boardroom. I don't know how the conversations go.

I look at the skill set of the boardroom, and I don't see a lot of retail experts. I look at the skill set of the people around Michelle. I don't see a lot of appropriate skill sets that could really be, I think, as additive to her as she needs to be. And, you know, look, Michelle and I have had great dialogue over the last year or longer, and I think she's incredibly smart. But, you know, she started, you know, at marketing at Starbucks, and that doesn't have a lot of, you know, exportability being, you know, a mass merchant like Kohl's.

So, you know, I feel like Michelle could be an effective leader. Again, I'm not in the boardroom. I know the board needs more help. I know they need a shareholder in the room that has a sense of urgency, that has a real understanding of retail and the dynamic and the competitive landscape, and I think we could really be incredibly beneficial to Michelle and help her improve the business and turn this company around and create meaningful value for shareholders.

BRIAN SOZZI: Well, Jonathan, let me follow up on that. Do you think there should be a change in the CEO ranks within Kohl's? She has been-- Michelle Gass has been the CEO of Kohl's since May 2018. Margins have underperformed. The stock has underperformed. Just listening to you, it sounds as though maybe there should be another CEO, perhaps, with more a financial background because you're calling [? from ?] a lot of things for Kohl's that require just very, very expert and detailed financial analysis-- breaking up the company, maybe exploring a spin-off of its e-commerce operations.

JONATHAN DUSKIN: You know, Brian, I think it's a little premature. You know, Michelle has been there a long time. She was the architect of the greatness agenda. She was the chief merchant. She was the chief marketing, and she was the COO, as you point out.

But I've seen it a couple of different ways. Obviously we've done this a long time, and sometimes you have a capable leader that just doesn't have a good supporting cast or doesn't have the right direction from the board, doesn't have the right initiatives, doesn't have the right incentive structure, and doesn't have the right counseling and guidance. You know, retail is-- it's not-- we're not splitting atoms here, but it's complicated, and every initiative seems to have two sides. And I think-- you know, I think the quickest way for shareholders to get the greatest return is if we're able to work with Michelle and really, you know, put her on the right path to success. But, you know, there's a question mark.

BRIAN SOZZI: One red flag, and lastly, from your letter is that you note that there were potential suitors based on your knowledge and understanding that approached the board of Kohl's potentially to pursue some form of strategic alternatives, whatever that might be. Maybe it's a sale of the company, whatever it is. But you suggest that the board didn't take those seriously. What else can you share with us there?

JONATHAN DUSKIN: Well, I think the board is really entrenched. You've got some directors that have been here 15 years, some longer. And, yeah, they really feel like, you know, this is their right. You know, it's like a birthright. I've been on the Kohl's board, and it's my company, and this is-- you know, I'm not going to let, you know, some activists push us around. And, you know, I feel like there's a real sense of entitlement on the board, and also combined with complacency, it's not a good recipe.

And I think they'd do anything to chill the process. They like being on the board. They like their board seats, and they're not going to let, you know, somebody else take control of this company. And I think they're very entrenched, and I think it's one of the reasons, you know, significantly more change in the boardroom needs to happen.

BRIAN SOZZI: All right, we'll leave it there. Jonathan Duskin, always good to see you. Look forward to following your progress. And Karina, back to you.

I should note, though, we did reach out to Kohl's to see if Michelle Gass, the CEO, wanted to respond to some of these claims. Kohl's did not return our email for request.