Shares of Kohl’s (NYSE:KSS) are down nearly 20% today after the department store operator said it ended talks with the Franchise Group (NASDAQ:FRG) concerning a sale of its business.
In a statement, Kohl’s said that it has ended talks to sell its business due to a deteriorating retail environment and worsening economy. Brookfield, Wisconsin-based Kohl’s had been in talks to sell itself to the Franchise Group. Franchise Group is best known for owning and operating The Vitamin Shoppe, a chain that sells nutritional supplements and vitamins.
Kohl’s also lowered its outlook for the fiscal second quarter, citing soft consumer spending and high inflation, news that has also rattled investors. Before today’s selloff, KSS stock had been down 28% this year as the company struggled to find a buyer.
KSS Stock: What Happened
Kohl’s is the biggest department store chain in the U.S., with more than 1,150 locations nationwide. The company has been under pressure for months from activist investors to pursue a sale and change its board directors. Earlier this year, Kohl’s turned down a takeover offer that would have paid $64 per share for the company. That’s an 83% premium to where the stock finished trading yesterday. So far this year, Kohl’s had engaged with more than 25 potential suitors with the aid of investment bank Goldman Sachs (NYSE:GS). But no deal has stuck.
The pressure to sell itself comes as the retail giant’s sales falter and its stock price continues to decline. The company has been struggling to recover from the pandemic. Most of its department stores were closed for extended periods or forced to operate at reduced capacity. Earlier today, Kohl’s again lowered its financial guidance, saying it now expects sales to be down by high-single digits for this year’s second quarter, compared with an earlier forecast of a low-single digit decline.
Why It Matters
The end of takeover talks with the Franchise Group and the lowered guidance not only raises questions about the future direction of Kohl’s but also shows how quickly the retail environment is deteriorating amid persistent inflation and rising interest rates. In a news release, Peter Boneparth, chair of Kohl’s board of directors, said: “Despite a concerted effort on both sides, the current financing and retail environment created significant obstacles to reaching an acceptable and fully executable agreement.”
In the release, Kohl’s emphasized that while it feels that it would be best for the department store chain to continue operating as a standalone entity for now, its board of the directors “remains open to any opportunities to maximize shareholder value.”
That is proving to be cold comfort to investors who are reacting negatively to the end of a potential takeover. However, Kohl’s isn’t the only retailer to call off a deal in recent days. Walgreens Boots Alliance (NASDAQ:WBA) earlier this week canceled the planned sale of its British pharmacy chain, Boots, citing the current downturn in financial markets.
What’s Next for KSS Stock
Where Kohl’s goes from here isn’t immediately clear. Another suitor may emerge in coming weeks, or the Franchise Group could return with a lower buyout offer. It’s not presently known. For now, it appears that Kohl’s will soldier on alone. It will have to do its best to navigate the uncertain economic and market environment that is making it increasingly difficult for companies to turn a profit and execute deals.
On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.