Department store chain Kohl’s Corp. (KSS) is being pursued by an activist investor group to consider splitting its burgeoning e-commerce business, according to The Wall Street Journal. The hedge fund, Engine Capital, owns around 1% of Kohl’s outstanding common shares, and has written to the Board about the separation as a means to improve the stock’s performance.
Following the news, Kohl’s shares shot up more than 2% during pre-market trading at the time of writing.
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Engine Capital’s Letter
According to the letter written to Kohl’s Board, the hedge fund states that considering online sales of $6.2 billion, the company’s digital business alone would be worth $12.4 billion.
Engine also noted that it has held negotiations with private equity firms, who are ready to pay at least $75 a share by way of monetizing Kohl’s real estate. However, the company claims that its e-commerce business works in tandem with the stores.
With the changing business dynamics during the global pandemic, the online/digital channel has become a more profitable and beneficial segment for retailers, with in-store sales taking a hit due to the COVID-19-related restrictions.
Financial investors see more value in digital businesses. Thus, the hedge fund in Kohl’s case, is pushing the company to separate both its online and in-store businesses. According to critics, lagging in-store sales pull back business growth and assigns a premium value to the standalone digital channel.
Latest Results
On November 18, Kohl’s reported a solid beat and raised third-quarter results. Q3 earnings came in at $1.65 per share, and revenue jumped to $4.6 billion, exceeding estimates by huge margins.
The company also raised its full-year revenue to grow by the mid-twenties percentage range as opposed to the earlier low-twenties percentage range.
Consensus View
The Wall Street community has a Hold consensus rating on the stock based on 5 Buys, 5 Holds, and 2 Sells. The average Kohl’s price target of $69.08 implies 42.58% upside potential to current levels. Shares have gained 19.8% over the past year.
Blogger Opinion
TipRanks data shows that financial blogger opinions are 66% Bullish on KSS, compared to a sector average of 70%.
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