Turns out the activist investors didn’t have the secret sauce for Kohl’s

Kohl’s stock tanked today after it slashed guidance and doled out a lackluster earnings report. That’s surely not pleasing to any of its investors, but it’s an especially bad look for the activists who started shaking things up at the department store company in 2021.

Back then, Kohl’s struck a deal with a handful of activist investors you probably haven’t heard of (Macellum Advisors, Ancora Holdings, Legion Partners, and 4010 Capital) after they agitated for change. The company agreed to add two of their hand-picked directors to the board, as well as a mutually agreed upon third director. (One of the activists’ picks retired just this month.)

In mid-2022, Kohl’s tried to sell itself to the owner of Vitamin Shoppe for around $8 billion, but the talks fell apart. Then in late 2022, Ancora ramped up the pressure, seeking even more directors and trying to remove Kohl’s CEO, Michelle Gass, who soon left to become the CEO-in-waiting at Levi Strauss. Tom Kingsbury, one of the directors the activists had picked, took over as Kohl’s CEO. 

One of the main concerns the activists had from the start was that Kohl’s wasn’t moving fast enough to address stagnant sales and declining operating margins, The Wall Street Journal reported at the time. 

Turns out, that’s still a problem. In today’s earnings report, revenue and profit fell short of analysts’ estimates, with overall sales sliding 5.3% and same-store sales dropping 4.4%. Operating margin dropped to 1.4% from 2.9%, and the company lowered its operating margin forecast for the year. 

In response, the stock dropped 23% on Thursday. That put it at $21.02, which is about 60% lower than where it was trading when reports of the activists’ presence surfaced. 

Of course, it’s tough to pinpoint prices at which activist investors buy and sell stocks, so it’s possible they made money on their investments. The firms combined to control about 9.5% of Kohl’s in 2021, according to reports at the time. Bloomberg data show Ancora owned about 1.4% of the stock at the end of the first quarter this year. Macellum, meanwhile, slashed its position dramatically in the first quarter and owned just 0.2% as of quarter end. Legion and 4010 exited the stock by the end of 2021 and middle of 2022, respectively. 

But two of their three picks still sit on the board — one of them at the helm of the company — and their ideas certainly didn’t light a fire under the stock price for the long term, or in some cases, couldn’t gain traction with shareholders.

In Kohl’s earnings presentation Thursday, Kingsbury said the results “did not meet our expectations and are not reflective of the direction we are heading with our strategic initiatives.”

Gass, Kohl’s former CEO, may get the last laugh: She took over running Levi’s from longtime CEO Chip Bergh in January, and the stock is up 44% so far this year. Kohl’s, meanwhile, is down 25%.