Ancora calls for the removal of Kohl's top leadership

Ancora Holdings is calling on Kohl's board to remove both its chair and CEO and replace them with executives with turnaround experience, the activist investor said Thursday.

Why it matters: Third time's a charm? Ancora was part of a group of activists that successfully pushed for a shakeup of Kohl's board last year.

• That was followed by an unsuccessful proxy fight earlier this year by Macellum Capital Management (which declined to comment for this article) to make further changes.
• But neither has led to an improvement in the retailer's fortunes.

Of note: Kohl's recently said it launched a competitive process for a sale and leaseback of a portion of its real estate assets.

• The process follows a sale process earlier this year that ended with no buyer.

Details: Ancora, pointing to a letter it sent to Kohl's board, cited a failed strategic review, a credit downgrade and falling sales as reasons for the board to make the changes at the top.

• The firm said it's been privately engaging the board for the past 18 months and withheld public critique to provide Kohl's time to conduct a strategic review and "produce a viable standalone plan," but that the retailer has failed to do so.
• Ancora is pushing for a CEO succession plan that includes interviewing a diverse set of candidates.

What they're saying: "It’s not surprising given the terrible performance of the stock," says David Swartz, an equity analyst at Morningstar Research.

• "There is probably a lot more to come from Ancora and other major shareholders. I think it’s very likely that Kohl’s will face another proxy battle next year," he tells Axios.
• While Swartz says he doesn't expect the immediate dismissal of CEO Michelle Gass and chair Peter Boneparth, it could happen if performance worsens.
• "Most likely, a management change would not stop Macellum and other shareholders from staging another attempt to take over the board and sell the company," he adds.

Catch up fast: Kohl's was downgraded Sept. 16 by S&P Global Ratings from BBB- to BB+, a notch below investment grade, but with a stable outlook.

• "We expect that over the next 12 months, economic headwinds and a promotional environment will pressure profitability and result in weak credit metrics, including leverage remaining above our mid-2x downgrade threshold for a 'BBB-' rating," the rating agency said.

Yes, and: Moody's on Tuesday placed the department store chain's senior unsecured rating of Baa2 on review for a downgrade.

• The rating agency will take into account the retailer's downward earnings revision as well as pressure on gross margin tied to excess inventory reduction.
• Moody's also threw some shade on the share buyback program.
• "The company's stated leverage is well above its target of adjusted debt to EBITDA (as defined by Kohl's) of 2.5x as Kohl's completes an $500 million accelerated share repurchase program despite negative free cash in the first half of 2022," the agency said.

Kohl's did not respond to a request for comment.