(Bloomberg) — Kohl’s Corp. fired its chief executive officer after the board uncovered that he directed the retailer to do millions of dollars of business with someone he had a personal relationship with on “highly unusual terms.”
The company said it’s starting a search to find a permanent replacement following the departure of Ashley Buchanan, who only started in January from running retailer Michaels Cos. Chairman Michael Bender will serve as interim CEO, according to a statement.
The Wall Street Journal reported Thursday that Buchanan’s business dealings were with a woman he was involved with romantically named Chandra Holt, citing people familiar with the matter it didn’t identify. She’s a consultant and the founder of Incredibrew, which sells coffee infused with vitamins, according to the Journal.
Kohl’s didn’t immediately respond to a request for comment on the details of Buchanan’s relationship.
The CEO change is a “blow upon a bruise for the beleaguered department store chain,” Neil Saunders managing director at GlobalData, said in a research note. While it’s 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.”
The company also released preliminary results for its first quarter, including a comparable-sales decline in the range of 4% to 4.3% — less than what analyst had anticipated. Kohl’s also projected a net loss for the period that’s less than the average analyst estimate.
Kohl’s shares rose as much as 9.9% in New York trading on Thursday. The stock has declined by about 50% so far this year, deeper than the decline of benchmark US stock indexes over the same period.
The termination of Buchanan follows an outside investigation overseen by the board’s audit committee. The probe determined that Buchanan “had directed that the company conduct business with a vendor founded by an individual with whom Mr. Buchanan has a personal relationship on highly unusual terms favorable to the vendor.”
Buchanan pushed the company to enter into a multimillion dollar consulting agreement wherein the same individual was a part of the consulting team, the board found. Kohl’s said that in neither case did Mr. Buchanan disclose this relationship as required under company’s code of ethics.
The retailer said that Buchanan’s termination is unrelated to the company’s performance and did not involve any other company personnel. He’ll also be required to reimburse the firm $2.5 million from his signing bonus.
The abrupt change adds more pressure to a retail business that’s struggled for years, posting 12 straight quarters of revenue declines. The company has lost market share as bigger competitors offer lower prices and a broader assortment of goods.
Kohl’s said in January, shortly after Buchanan became CEO, that it would eliminate about 10% of its roles reporting into corporate offices as it looks to lower costs and streamline operations. It’s also closing underperforming stores.
To regain lost ground, the retailer has identified areas of focus such as fine jewelry. The company has also leaned on partnerships, such as opening Babies “R” Us shops in some locations. It has a longstanding relationship with Sephora, the cosmetics retailer.
Bender said in the statement that he’s “committed to continuing the execution of our strategic framework to grow shareholder value.”
In an email to workers viewed by Bloomberg News, Bender called on staff to “stay focused on what matters most: taking care of our customers and each other.” He said the company, which is based in Menomonee Falls, Wisconsin, is planning a town hall meeting on Thursday to discuss the news.
–With assistance from Jaewon Kang.
(Updates with details throughout.)
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