Kohl's (KSS) Falls 15% After Ending Sale Talks With Franchise Group and Issuing Q2 Warning

Updated - July 01, 2022 7:40 AM EST

Shares of Kohl’s (NYSE: KSS) are down almost 15% in premarket trading Friday after the company abandoned sale talks with Franchise Group and issued a Q2 warning.

“Despite a concerted effort on both sides, the current financing and retail environment created significant obstacles to reaching an acceptable and fully executable agreement. Given the environment and market volatility, the Board determined that it simply was not prudent to continue pursuing a deal,” KSS said in a statement.

The timing to fund such an acquisition is far from ideal due to sharp volatility and uncertainty around the stock market and the U.S. economy as the Federal Reserve hikes interest rates to curb the record-high inflation. The company has been pushed by activist investors over the past few months to sell its business and revamp its board of directors.

Earlier this week, Walgreens Boots Alliance (NYSE: WBA) also terminated its plan to sell its U.K. pharmacy unit because no interested party came up with an acceptable offer due to the current market commotion.

Franchise Group, which well-known retail brands such as American Freight, Buddy's Home Furnishings, and The Vitamin Shoppe, has been considering reducing its takeover bid for Kohl’s to around $50 per share from $60 per share, according to recent reports.

The holding company was reportedly weighing slashing the offer because of the ongoing challenges in the retail industry and increasing concerns over a potential recession.

Earlier this month, Franchise Group offered to acquire Kohl’s for $60 per share at a valuation of about $8 billion, after which the two companies initiated talks to negotiate due diligence and final agreements, but the deal fell apart in the end.

Moreover, KSS provided an update on Q2 trends:

“As inflationary pressures on the consumer continue, the Company is seeing a softening in consumer spending and now expects sales to be down high-single digits for Q2, as compared to our prior expectations of down low-single digits relative to last year. The Company is taking actions to navigate this environment and will share more when it releases Q2 earnings on August 18.”

By Senad Karaahmetovic

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