UPDATE: March 11, 2021: Kohl's later on Thursday had a scathing response to the activists' latest salvo, saying in a press release that their "proposals threaten to disrupt Kohl's business momentum," that their focus is "on short-termism and financial engineering at the expense of sustainable operating and financial success" and that some of their suggestions are already "well underway." 

The retailer once again defended its board as adequately refreshed and more experienced in retail than the activists' recommendations, especially at a large, public company like Kohl's, and better suited to its needs. Kohl's painted the slate proposed by the activist group as lacking "critical relevant experience" and noted that most nominees are without "meaningful digital experience," which now accounts for 40% of Kohl's sales. The retailer also pointed out that one "has presided over four companies that filed for bankruptcy." 

Kohl's said it had met often with the group and would do so again as scheduled next week, but urged shareholders to reject their nominations.

"Regardless of whether the Activists are nominating five or nine directors, their capabilities and track records simply do not measure up," the company said.

An activist investor group pushing for change at Kohl's on Thursday said it had filed a revised proxy statement with the Securities and Exchange Commission after talks with Kohl's representatives broke down.

The investors, which together hold a 9.5% stake in the company, said their nominees would "run in opposition to five of the Company's directors that it viewed as least qualified to continue serving on the Board," down from their original slate of nine new members, nominated in January, that would have effectively taken control.

The group, which includes Macellum Advisors, Ancora Holdings, Legion Partners Asset Management and 4010 Capital, is also recommending "changes in merchandising, inventory management, customer engagement and expense rationalization, as well as the potential to unlock $7-8 billion of real estate value trapped on the Company's balance sheet through sale leaseback transactions."

The investors were unmoved by Kohl's latest earnings report, which showed sales and margin declines in the fourth quarter and full year. Thanks in part to a tax benefit, the quarter was profitable, but the retailer was in the red for the year, with a $262 million operating loss, from $1 billion operating income in 2019. They slammed those results, writing in a press release that the "Board seems to be content performing just slightly better than the worst companies in retail," and further that "a refreshed Board must oversee the development of a robust road map to compete for market share broadly in the soft goods, discretionary sector."

"'Best of the worst' is not a viable strategy, nor does it satisfy shareholders like us seeking long-term superior performance," they also said. "Kohl's is enormously well positioned with off-mall locations, which has significant advantages, but it also means Kohl's competes against thriving off-mall players like TJX Companies, Ross Stores, Target, Old Navy and Burlington."

Kohl's didn't immediately return a request for comment regarding Thursday's salvo, but it has been grappling with the activist demands. On Feb. 17, with discussions underway, the retailer named a new independent director, Boston Consultant Group fashion consultant Robbin Mitchell. Within a week, though, Kohl's publicly pushed back, saying in a release that it rejected "the Investor Group's attempt to seize control of our Board and disrupt our momentum, especially considering that we are well underway in implementing a strong growth strategy and accelerating our performance, and we have refreshed half our Board with six new independent directors since 2016."

In March 9 filings with the SEC, the retailer released a defense of its board and a transcript of a conference between Kohl's CEO Michelle Gass, Chief Financial Officer Jill Timm and Bank of America Merrill Lynch analyst Lorraine Hutchinson. In that discussion, Gass said she was open to dialogue with the group and shared some of their concerns but disagreed with a board takeover and other proposals, including the idea of selling and leasing back its real estate. In another proxy statement filed March 9, Kohl's detailed meetings between Gass and other Kohl's board members and representatives of the group and noted Gass would meet with them again in the near term. "We continue in good faith to seek an agreed resolution of these matters," per that filing. "At the time of filing this preliminary proxy statement, however, we have not been successful in doing so."

It was clear from the activists' latest press release, also published on Thursday, that they don't take kindly to some of the retailer's language. They had "hopes of working constructively," they said, but added, "Rather than engaging in meaningful discussions, however, Kohl's has tried to distract shareholders into believing our campaign is about 'seizing control' of the Company or the Board."

In Thursday's filing, the investor group also took issue with $600 million in unsecured debt due in 2025, at 9.5% interest that Kohl's took on in April, as the pandemic forced store closures and employee furloughs and all but ended sales. Kohl's wasn't the only retailer and retailers weren't the only companies to borrow cash in order to hang on during the pandemic, but the activist investors in their filing questioned the necessity, calling the move "very troubling."

"While we acknowledge that there was a high degree of uncertainty at the time of this capital raise, we believe this issuance was ill-conceived and would have been challenged by any well-functioning board of directors," they said, claiming that Kohl's didn't need the capital due to what they said was "significant additional sources of liquidity at the time."

They also called the borrowings "poorly negotiated," including not just the 9.5% interest rate but also "a prohibitively expensive make-whole call premium that would cost the Company $224 million if the notes were repaid today."