Yahoo Finance anchors discuss Engine Capital's letter to the Kohl's board of directors, pushing the company to consider selling after the stock underperformed over time.

Video Transcript

[MUSIC PLAYING]

BRIAN CHEUNG: Well, it's a busy Monday morning, so much going on. We were talking about Tesla. We were talking about Rivian. Apparently, Del Taco got purchased by Jack in the Box early this morning.

But we want to focus in the retail space, specifically on the department store chain Kohl's, when apparently, they're considering-- or rather, an activist investor is asking them to consider a sale of the company or a separation of its e-commerce business, this coming from the New York-based hedge fund Engine Capital. And Brian Sozzi, I understand that you've been watching this all morning. And apparently, Kohl's is now out with a statement responding to Engine Capital. What are they saying?

BRIAN SOZZI: You know, maybe Kohl's should put a Del Taco in their stores to drive some traffic. You won't have to fight off your second activist investor campaign of 2021. But yes, let me set this up really quick.

Engine capital coming out here and firing at Kohl's here via a very-- I would say-- aggressive letter to the company's board of directors, noting that the stock has underperformed since CEO Michelle Gass took over in May 2018, pointing out in a table that the median stock in the universe that they compare to was up 8 and 1/2% Michelle Gass took over as CEO-- Kohl's shares during that same time period down 10 and 1/2%.

And, really, this is some of the same arguments we saw earlier in the year when Macellum Advisors attacked Kohl's for its lagging fundamental performance and it's just absolutely terrible stock price performance here. So you're seeing Engine Capital really call attention to what they're saying is a failure of management and also noting this. "Much to our disappointment, these considerable assets and operating tailwinds continue to fail to catalyze meaningful value for shareholders."

And the letter goes on to say that Kohl's has unacceptable long-term stagnation. And on the screen right now, you're seeing that response that Kohl's just forwarded to Yahoo Finance in response to this Engine Capital letter. Now, they're still saying that their performance this year is strong. Now Engine Capital saying, well, you have to go back longer than that, and as they did, noting that the stock price just has not gotten it done.

So what Engine Capital proposals here, guys, is twofold. One, that Kohl's explore a potential sale of their business to private equity. They reason the company is worth $75 a share. As you can see there, Kohl's stock price is only about $52.

And if they don't want to do that, perhaps go in and explore a spinoff of their online operations, just like JANA Partners is agitating Macy's to do, Engine Capital saying [? Kohl's ?] online business could be worth $12 and 1/2 billion. In a sale, [? Kohl's ?] Market cap is only about $7.3 billion, according to Yahoo Finance Plus data here.

So I've covered Kohl's for a long time. My general view has been this is a management team that has long been in the clouds. You have a chairman in Peter Boneparth that has been the chairman of Kohl's since 2008, despite many years of underperformance on operating margins and the stock price. No clue how he's still the chairman of Kohl's here. But, again, it's gonna be tough for Kohl's to skate past this one here. You could see some big changes at the company coming and coming very soon.

BRIAN CHEUNG: Well, tell us how you really feel, Brian. We'll see if maybe--

BRIAN SOZZI: You want to?

BRIAN CHEUNG: --they can do some sort of transaction--

BRIAN SOZZI: I really could.

BRIAN CHEUNG: --maybe in [? Kohl's ?] [? cash. ?]

BRIAN SOZZI: I was holding back. I was holding back.

BRIAN CHEUNG: Yeah.

BRIAN SOZZI: I was holding back.

BRIAN CHEUNG: All right. We'll save that for another--