Updated 4:20 p.m. ET on May 1
Scandal has hit the struggling Kohl’s Corp.
On Thursday, the board of Kohl’s said it fired chief executive officer Ashley Buchanan for cause.
“An investigation conducted by outside counsel and overseen by the audit committee of the board determined Mr. Buchanan violated company policies by directing the company to engage in vendor transactions that involved undisclosed conflicts of interest, which the board determined to be cause,” the company disclosed Thursday morning.
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A filing with the Securities & Exchange Commission indicated that Buchanan “had directed that the company conduct business with a vendor founded by an individual with whom Buchanan has a personal relationship on highly unusual terms favorable to the vendor and that he also caused the company to enter into a multimillion-dollar consulting agreement wherein the same individual was a part of the consulting team. It also found that in neither case did Buchanan disclose this relationship as required under company’s code of ethics.”
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Aside from getting fired, Buchanan must forfeit all equity awards he received from the company, including the recruitment awards made in January. Buchanan must also reimburse Kohl’s for a pro rata portion of his signing incentive in the amount of $2.5 million.
The filing did not identify the individual that Buchanan had a personal relationship with. However, the Wall Street Journal identified Chandra Holt as being a romantic interest of Buchanan, that they both worked at Walmart years ago, and that Holt is a consultant and the founder of Incredibrew, a coffee brand infused with vitamins and minerals. Before Kohl’s, Buchanan was CEO of Michaels Cos.
Kohl’s stressed that Buchanan’s termination was not related to the company’s performance, financial reporting or results of operations, and that it did not involve any other company personnel.
Michael Bender, who has served as chairman of the the retailer’s board for a year, and a director since July 2019, has been appointed interim CEO. The company is expected to hire a search firm to find a permanent CEO.
Investors saw some kind of opportunity in the change — however unexpected — and traded shares of Kohl’s up 7.6 percent to $7.21 on Thursday, leaving the company with market capitalization of $802.6 million.
“The board has full confidence in Michael to serve our customers and associates as interim CEO and deliver on our commitments to our shareholders,” said John Schlifske, chair of Kohl’s nominating and ESG committee, in a statement. “Michael brings over three decades of leadership experience across retail and consumer goods companies, having served as CEO of Eyemart Express, and in senior roles at Walmart, L Brands and PepsiCo.”
Kohl’s said its board plans to announce a new chair “in due course.”
The Menomonee Falls, Wisc.-based retailer provided a preliminary outlook for the first quarter of 2025, projecting comparable sales would be down 4.3 percent to 4 percent. Operating income is seen in the range of $40 million to $45 million, and diluted earnings per share are expected to range from down 24 cents to down 20 cents. Kohl’s plans to announce its first-quarter results on May 29.
Buchanan had been in the process of developing a fresh turnaround plan after the last two CEOs, Tom Kingsbury and Michelle Gass, were both unable to reset Kohl’s despite intense efforts — from adding and dropping brands to reconfiguring the store layout to emphasizing better-performing categories.
Most recently, Buchanan came up with a plan that had it bolstering proprietary brands, which generally provide greater value for shoppers and better margins for retailers. Sonoma for apparel and FLX for activewear are two of the company’s best private brands.
Buchanan’s plan also called for restoring discontinued categories and deals on coupons within the private brand program. He was also putting more attention on fine jewelry, home decor and petites, impulse item often displayed near checkout areas, and continuing to prioritize the Sephora beauty areas.
Kohl’s has also made significant real estate changes this year, including the closure of its long-standing San Bernardino, Calif., e-commerce fulfillment center and 27 retail locations. The retailer still operates roughly 1,000 stores.
Last month, TD Cowen, a leading global investment bank and financial services firm and division of TD Securities, put Kohl’s on a “liquidity watch” report evaluating cash flows and balance sheets in retail. “Kohl’s leverage has increased meaningfully over the past year given negative profitability trends amidst a persistent declining sales backdrop,” TD Cowen reported. TD Cowen also noted that the Menomonee Falls, Wis.-based, value-oriented retailer has $353 million in debt due July 2025 that needs to be refinanced. “The current effective rate of the note is 4.25 percent, and we believe there is risk that any new debt would likely be issued at a higher rate.” Kohl’s ended the fourth quarter with $134 million in cash.
Neil Saunders, managing director of GlobalData, said: “The sudden departure of Ashley Buchanan from Kohl’s is a blow upon a bruise for the beleaguered department store chain. While the sacking is not related to performance, it gives the impression that Kohl’s is in perpetual state of chaos and it raises some questions about the due diligence over his appointment.
“It also means that Kohl’s is without a permanent captain at a time when the ship is looking far from seaworthy,” Saunders added. “This is a distraction that the company does not need and can ill afford. Kohl’s now needs to find someone with the requisite skills to enact a quick turnaround and get the company back onto the front foot. Given the deep-seated problems at the chain, this might be a tall order.”
In the meantime, Bender is in charge.
He served as president and CEO of Eyemart Express, an optical retailer, from January 2018 to April 2022, having previously acted as president from September 2017 to January 2018. Prior to joining Eyemart Express, Bender held various executive management positions at Walmart Inc., most recently as chief operating officer of Global eCommerce. Earlier, he held senior positions at Cardinal Health Inc., Victoria’s Secret for L Brands Inc. and PepsiCo Inc. He currently serves as a director of Acuity Brands. Bender will remain on the board, but will step down from certain board committees on which he serves as well as his role as chair while he serves as interim CEO.