Kohl’s board ‘needs to be completely revamped’: Activist investor

Macellum Capital Management CEO Jonathan Duskin sits down with Yahoo Finance Live to discuss the activist investment firm's outlook on Kohl's and the retailer's board, data-centric financial plans developing the Sephora brand, and GameStop Chairman Ryan Cohen's stake in Bed Bath & Beyond.

Video Transcript

RACHELLE AKUFFO: All right, welcome back, everyone, to Yahoo Finance Live. We're going to take a quick check now on home goods retailer, Bed, Bath & Beyond. Now shares closed up 34%, the highest gain since June. The stock popped on news that GameStop's chairman and Chewy co-founder Ryan Cohen had a nearly 10% stake in the retailer via his investment company RC Ventures. He also suggested selling off the whole company to a private equity firm and spinning off their bye-bye baby chain.

And staying with retailers, Kohl's had its investor day today. For more on what came out of it and the response, let's bring in Yahoo Finance's Brian Sozzi, who's speaking with activist investor, Jonathan Duskin, from Macellum Capital Management's CEO.

BRIAN SOZZI: Thanks so much. Jonathan, look, the stock-- Kohl's shares got absolutely thrashed going into the close. What went wrong here?

JONATHAN DUSKIN: Look, obviously, the market was under a little bit of pressure today. But that notwithstanding, there are not many stocks on my screen down 13%. I think investors were disappointed. This has been something that we've been told to wait for, for a number of months, and that there was an exciting plan and we're going to hear a lot more. And I think we were skeptical coming into it, as I think most people know, and raised some issues and concerns that we had. And unfortunately, I think a lot of those were reinforced by this analyst day.

I don't think the objectives were targets that the public company should be setting. Growing EBIT low single digits is not great, and in fact, growing EBIT low single digits from a starting point that was down from last year. So I don't know-- Brian, you probably remember this. This year's guidance, '22's guidance for EBIT is down from '21's guidance. So if this plan works, in three years, we might be back to where they were last year.

BRIAN SOZZI: Well, that sounds, well, not so encouraging. Jonathan, maybe you can make sense of this for me. Because Kohl's laid out-- I think they put about three bullet points on their press release. They want to leverage data science. What does that mean for them?

JONATHAN DUSKIN: You'll have to ask them. Not to be trite, data is very important, right? How we buy inventory, how we manage planning and allocation, early reads on bestsellers when things hit the website. I mean, there is a lot of data that exists within retail that I think can be used very profitably to help be predictive in terms of, like I said, inventory buys and, you know, how to manage stores, payroll hours. I mean, so many things can be measured better with data. So I don't doubt that there's an opportunity to use data to improve the business. I just-- I don't know that it's revolutionary. I think many-- most companies have been doing this for many years now.

BRIAN SOZZI: They-- one of the biggest numbers that Kohl's touted today was $8 billion in sales from Sephora by opening 850 shops in its stores. What do you think about that plan? And are these shops profitable?

JONATHAN DUSKIN: You know, so-- and by the way, it might have been $2 billion. But--

BRIAN SOZZI: $2 billion, my apologies. That was the online number. Yep.

JONATHAN DUSKIN: No worries, sorry. They talked about a large number, regardless. Look, I think what matters is how it all comes out in the blender, right? You know, if you add up every one of the things that they said were going to contribute to growth, you can't get to their growth numbers. So things are deteriorating. And I think that's been a problem that Kohl's has for many years. While they might have one strategy that works, you know, they'll say, oh, active is growing, the problem is, their other businesses are declining as quickly as the one that's growing is growing. So, you know, they never have sales growth.

So to look at one thing in isolation and talk about its growth trajectory I don't think is terribly helpful. I think to look at the whole picture and is the pie growing and is EBIT growing, I think is the most important thing. And again, if you talk about low single digit sales growth, remember, they've not been able to grow same store sales for a decade. They didn't grow same store sales last year when almost every retailer without exception grew versus 2019 in what was one of the most robust consumer environments we've had in a long time.

You know, it's hard to build out a financial model where that's credible. And again, I think we saw a lot of that response today, shareholders voting with their feet about their disappointment. And it's a very high risk strategy, Brian. I don't know if you've looked at it through this lens, but, you know, it would be great to see better cost containment, better gross margin gains, through better inventory turns. They're going in the opposite direction. They're talking about bringing up inventories. They're talking about increasing their Capex, which is going to obviously increase their DNA, which is, again, going to make it hard for EBIT to grow.

So, you know, this is a risky plan that relies on something that hasn't happened at Kohl's for a decade. And if they missed their sales line, there's no margin for error. Their numbers will be-- the results will be a lot worse than we're anticipating. And, you know, I think when you compare this to the offers that are out there for $65, it kind of-- the opening offers that are out there for $65, you kind of scratch your head and wonder what the board must be thinking.

BRIAN SOZZI: What's next for you here?

JONATHAN DUSKIN: You know, there's-- obviously, the shareholder meeting is coming up. They haven't set a date yet. They haven't put their proxy materials out yet. But hopefully, we'll see that soon. Last year, the meeting was in May. So for us, nothing's really changed. We think this board needs to be completely revamped. There needs to be a new majority in the room that's putting a credible plan together with real retail experts that can actually create shareholder value. And that needs to be weighed against what a sale looks like.

So, you know, we're one shareholder. The AGM is coming up, like I said, sometime in May. And, you know, we're going to put it to a vote and let the shareholders weigh in and express what I believe is their disappointment about what's happened here over the last decade, the last two decades, and what the future is, and have them vote for change and have them vote to replace majority of the board with what we believe is an incredible slate of directors. It can really come in here and make a difference.

BRIAN SOZZI: Jonathan, we're very fortunate to have you on here today because you and your team were the ones who led the successful activist campaign against Bed, Bath & Beyond. Now I'm sure you saw what Ryan Cohen came out here and is articulating with a 9.8% stake. What do you think about what he is proposing just to sell off those assets at Bed, Bath, and would you want to join his campaign?

JONATHAN DUSKIN: You know, Ryan obviously has a great following. He's very well respected. You know, I interpreted his letter a little bit differently. I don't know that he wants to sell the whole thing. I think he's talking about exploring strategic alternatives that might include something with BBBY. And maybe it also includes selling the business. I think we've articulated that there's a lot of value in BBBY for a long time. If you look back at some of our early letters we wrote years ago, we thought BBBY was worth more than the whole business. And we believe that even more firmly now.

Remember, BBBY was struggling when Mark and the new board stepped in here, and they really did a great job of turning BBBY around. Now it's comping, I think last they told us, it was comping 15%. And they have plans to grow the footprint, the number of stores significantly. So BBBY is a tremendous asset, and they definitely have to do something more to monetize that. I don't think that's a surprise. And I think they are planning-- I hope-- I believe they are planning on doing something along those lines. And we look forward to hearing more about that.

And I'm sure that the board will listen to Ryan and listen to his suggestions. He's obviously been successful. And I'd just like to say, I think Mark is doing a good job. He's hit some speed bumps. I think he's been the first to acknowledge that. But I really do believe they've addressed those, and they're well on their way to achieving their billion dollar EBITDA run rate that they laid out last year for their three-year plan.

BRIAN SOZZI: So Jonathan, real quickly, you haven't talked to Ryan Cohen. Would you want to get involved with this?

JONATHAN DUSKIN: I don't know Ryan. He seems like a smart guy. You know, again, he seems very successful. So always, always happy to listen and see if there's an opportunity to work with someone.