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BFD Expert Voices - Retail Deals

BFD Expert Voices

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 today.

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, Richard writes. 

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.

1 big thing: Ancora calls for the removal of Kohl's top leadership

CookUnity, a chef-prepared meal delivery service, is eyeing a $30 million fundraise this year, ahead of a $100 million-plus financing in 2023, according to CEO Mateo Marietti.

Why it's the BFD: The first round will provide the company with a cash cushion this year and CookUnity will look for tier one investors next year to help build the company, he tells Richard. 

What they're saying: Market conditions will determine the structuring of the financing, Marietti says.

"It’s safe in the current environment to have extra capital available," he says, noting proceeds will finance marketing and hiring. 

"The offers we have to raise a small round are at a higher valuation than our last year valuation," Marietti adds.

"Based on the size of the company, I don't think we'll do anything below $30 million because the company is already at a meaningful size and more importantly growing fast," he explains.

By the numbers: CookUnity's annual revenue is significantly more than $100 million, Marietti says.

CookUnity has tripled in size since raising $47 million in an Insight Partners-led Series B last year, with some markets generating EBITDA margins of above 10%.

And it is selling 1 million meals per month, with each priced as little as $10.49, though they largely range between $15 and $20 per meal.

The company has raised more than $70 million in growth equity.

How it works: Marietti likens CookUnity to a food subscription service.

The company operates a revenue-sharing model with chefs, who prepare small batches of meals delivered to customers who have signed up for weekly meal plans.

CookUnity currently has locations in seven cities, including New York City, Los Angeles, Chicago, Atlanta, Seattle, Miami and Austin.

The company services the entire U.S. via these locations, though it plans to add facilities in San Francisco, New Orleans, Denver and Washington, D.C.

What's next: The company plans to expand to London and Toronto.

It also plans to launch a line of sauces created by the chefs it partners with, such as Esther Choi's kimchi.

Importantly, it plans to hire a CFO next year, with going public an option within the next three years, though the CEO says there's no rush.

The bottom line: "We want to become the primary destination for the most creative food in the world," Marietti says.

2. The BFD: CookUnity orders up a course of funding

Illustration of repeating dinner plate emojis with smiley faces on them.

Strategic acquirers have shown a huge appetite for CookUnity's competitors in recent years — see Nestlé's $1.5 billion acquisition of Freshly in 2020.  

Kroger, which bought Home Chef for $200 million in 2018, said last year Home Chef surpassed $1 billion in sales.

Alongside moves from Kroger and Nestlé, HelloFresh purchased Factor75 for $277 million in 2020.

Earlier this year, Sunbasket merged with Prüvit in a $1.3 billion transaction.

Other CookUnity competitors include Splendid Spoon, Epicured, Purple Carrot, Farmer's Fridge, BistroMD and Sakara Life.

State of play: Meal delivery

3. Meal delivery state of play 

HappyFresh, the Jakarta, Indonesia online grocery delivery platform, has secured financing from investors that will enable it to resume operations in its home market, Bloomberg reports.

It is also working with venture debt funds Genesis, Innoven and Mars to restructure its business.

It will consider options for its Thailand and Malaysia business as part of the overhaul.

4. Retail therapy

Animated illustration of a hand carrying a shopping bag, which then turns into many shopping bags

• Tuesday Morning, an off-price retailer of home goods and decor, has closed its $35m financing deal with Pier 1 owner Retail Ecommerce Ventures. https://axios.link/3dtTnGd 

• Ball Corp. (NYSE: BALL) sold its beverage packaging unit in Russia to Arnest Group for $530m. https://axios.link/3xILZgM 

• Egyptian Company for Cosmetics, a beauty and personal care manufacturer, has acquired a majority stake in the e-commerce platform Source Beauty. https://axios.link/3DHVPU7 

5. Retail transactions

• Rasa, an Indian fast-casual restaurant, has tapped former Starbucks operating chief Troy Alstead as an independent director to its board. https://axios.link/3r3Nv9q 

• Marco’s Pizza, the Toledo, Ohio quick-service pizza restaurant, has named Gerardo Flores as its chief development officer. https://axios.link/3S6S7rl 

6. It's Personnel

Welcome back, Retail readers. It's Thursday.

🌱 Kim will be at The Nest Summit, a part of Climate Week NYC, today.

Situational awareness: Amazon founder Jeff Bezos and CEO Andy Jassy will not be excluded from testifying in an FTC probe into its Prime membership program. 

🍿What we're snacking: Richard is subsisting on the journalism food staples of microwave popcorn and coffee (Brooklyn Lab's Colombia dark roast, to be exact).

September 22, 2022

1 big thing: Ancora calls for the removal of Kohl's top leadership