Kohl’s on Monday issued fresh long-term financial targets, including growing sales by a low-single-digit percentage annually, as the retailer faces pressure from activists to consider a sale and unlock value from its real estate.
Ahead of a planned virtual meeting with investors, Kohl’s announced that it aims to grow its Sephora business to more than $2 billion in annual sales. Kohl’s has opened about 200 of the Sephora shop-in-shops inside its brick-and-mortar locations, so far, and is on track to hit 850 by next year. The company hasn’t previously broken out Sephora revenue on its earnings reports.
Kohl’s also said it’s on pace to open more than 100 smaller-format shops over the next four years, in a bid to attract new customers. Chief Executive Michelle Gass said in an interview that the smaller stores are about 35,000 square feet, on average, with one of the first being tested in the Seattle area. For comparison, the typical Kohl’s store can span around 80,000 square feet.
“This year is a big year for us,” she said over the phone. “The framework that we’ve put out there for investors … it’s a very thoughtful guide for us.”
Gass added that Kohl’s is undergoing a significant transformation of its business model, to be the retailer of choice in the active and casual lifestyle categories.
In addition to the longer-term revenue goal, Kohl’s said it will be targeting operating margins of between 7% and 8% annually; per-share earnings growth of a mid-to-high single-digit percentage; and operating cash flow of over $5.5 billion, with roughly $2.5 billion of free cash flow between 2022 to 2024.
Monday’s meeting with investors and analysts is under a bigger spotlight as the retailer faces amplified pressure from activist groups, one of which is seeking to take control of the retailer’s board.
Last month, Kohl’s rejected the takeover offers that were on the table, which it said undervalued its business. In recent weeks, though, Kohl’s said it has been working with bankers and other financial advisors to consider unsolicited bids and also to make some proactive outreach to potential buyers.
Activists Macellum Advisors and Engine Capital have argued that Kohl’s has underperformed other off-mall retailers such as Target and TJ Maxx, and even some department store chains including Macy’s. Kohl’s shares are only up about 6% over the past 12 months, compared with Macy’s stock, which is up about 65%. The firms also have urged Kohl’s to consider selling some of its real estate and leasing it back, in order to unlock capital.
On Friday, Macellum called Kohl’s recently released fiscal fourth-quarter results disappointing, saying it remained skeptical of the retailer’s future given the current board of directors and management configuration.
“Why were sales uniquely hampered by supply chain issues compared to many other retailer peers?” asked Macellum Managing Partner Jonathan Duskin.
For the three-month period ended Jan. 29, Kohl’s reported revenue of $6.22 billion,…
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