The Case for Kohls(KSS)

Overview of Position:

• I believe company is worth $35 to $64 per share while only selling at $7.50 as of today(5/4)
• Market cap ~$830M so PE 7.6 or Adjusted PE of 5.1
• $5-$10B in CRE free and clear
• $1.5B LoC with $1.21B free(and I believe they can double to $3B if they choose)
• TTM made $109M GAAP and $167M adjusted with a $1.241B EBITDA
  • Adjusted is important bc they are shutting down 27 stores and have one time costs that pulled down earnings
  • I point out EBITDA bc most PE/anyone looking to take private will value this way and so they’re market cap is at .67x EBITDA
• Open Short Interest of 46%+ with almost 100% of shares owned but institutional investors

Alright, first let’s clear the air.. I don’t think Kohls the retailer is great or like the retail business in general. My wife and I and our kids get some clothes from it but it’s nothing over the top special. It just is a convenient and great place for family to buy clothes and get kohls cash. Let’s be real, it’s just a retailer! Their business isn’t amazing or that different than any other out there in those regards. If you just look at them as a retailer their market cap kinda makes sense(they technically have over $500M in FCF when you bring back in what they’re investing for Sephora buildouts so if you bring that then still dramatically undervalued but I digress).

With that said, their value is in their CRE portfolio. My personal portfolio is mainly real estate. KSS is ALL REAL ESTATE TO ME! They own 405 of their stores, all their distribution and fulfillment centers and their HQ outright.

Real Estate Value of $KSS:
- distribution centers ~$1.1B-$1.5B value
—$90-$130/ft x 11.8M sq ft
- 405 owned stores ~$3.2B to $6.5B
—$100-$200/ft x 32M sqft
- 248 ground leases ~$1B to $2B

CRE Value: Approximately $5.3B to $10B

I also believe this valuation range because SPG and BAM tried to buy KSS back in 2022 and offered $8.6B at the time. Simon is a very savvy investor and if he is valuing it here then that's like Warren Buffet wanting to buy your business. It means they think its a great deal at that value and can unlock value above and beyond it.

Also, if they were to just do a leaseback on a portion of their warehouse/fulfillment centers alone they would generate almost $1B in cash alone.

So my investment thesis is simple. I am buying KSS bc I am buying $5B to $10B in CRE for 10 cents on the dollar right now OR a not so great business at a good value while getting all the real estate for free.

Large Cherry on Top: If we get enough interest the short squeeze potential on this is astounding. How do you determine a value if all the shares short can't be bought back and the larger institutional investors start requiring the shorts to give them back their stock? If this happens you could see GME or AMC type insanity in share price.

What I see causing this scenario:

1. KSS Management used the LoC to buy back shares this whole last month. IF so they could have bought back half the shares for less than $350M. So the LoC is now at $640M of $1.5B.
   1. REALLY hope they also used it to buy back any of their bonds that were supposedly selling for 45 cents on the dollar. I don't know how to see the debt market so just going off hearsay from other forums.
2. Any activist investor or take private type offers start getting floated/announced
3. they have a good quarterly report and it surprises by alot(the most recent jump showed that a minor announcement that they aren't doing as bad as they warned)

Biggest Issue that sinks this potentially: The board/management team is pretty much the same as it was in 2022 when they completely failed. We need activists to shake things up for this to play out at best case scenario.