Kohl’s Corp. no longer in sales talks
Multiple pressures remain on company
Kohl’s Corp. is no longer in talks to sell the company, the Menomonee Fallsbased retailer said Friday.
Kohl’s also said Friday that its upcoming second-quarter earnings would be lower than forecast amid a weakening retail environment.
Kohl’s cited inflationary pressure on consumers as the reason for diminished sales and earnings expectations.
The news Friday sent Kohl’s shares down nearly 20%. Kohl’s shares ended the day at $28.68, down $7.01, or 19.6%.
Kohl’s announced in June that it was in negotiations for a possible sale to Franchise Group Inc., which owns The Vitamin Shoppe and Pet Supplies Plus.
The company selected Franchise Group as a prospective buyer based on its $60 a share proposal, which “significantly exceeded the other available bid,” Kohl’s said in a regulatory filing with the U.S. Securities and Exchange Commission.
But trouble appeared with a June 22 report that Franchise Group wanted to lower its bid for Kohl’s from $60 per share to around $50 per share.
“Ultimately, reflecting the current financing and retail environment, (Franchise Group) submitted a revised proposal at $53 per share,” Kohl’s said in the SEC filing.
Franchise Group lacked “definitive financing arrangements to consummate a transaction, and the parties faced significant obstacles reaching a fully executable agreement,” the filing said.
“In light of the current financing and retail environment, which has significantly deteriorated since the beginning of the process, the board unanimously determined that it was no longer prudent to continue its process and that it is in the best interest of shareholders for management to continue to execute the company’s strategic plan on a standalone basis,” it said.
“The board nonetheless remains open to any opportunities to maximize shareholder value,” the filing said.
Along with a recently announced stock buy-back program, Kohl’s is “reviewing other opportunities to unlock shareholder value” that include a possible sale-leaseback of its properties, the company said in a separate statement.
Kohl’s scuttled deal was the second
time this week that a major retailer retreated from a potential sale due to worsening economic conditions.
Walgreens said Thursday that it was giving up on its hopes of selling its Boots business in the UK.
‘Difficult to make the math stack up’
“Kohl’s decision to terminate acquisition talks with Franchise Group comes as no great surprise,” said Neil Saunders, managing director of GlobalData.
“Current market conditions are not conducive to corporate deal-making, with issues around financing and raising debt and capital all acting as barriers to closure,” Saunders added.
Saunders said that while Franchise Group was serious about the bid, it “likely found it increasingly difficult to make the math stack up against a backdrop of a deteriorating retail environment.”
Data released two weeks ago showed that inflation has begun to erode the will of Americans to shop as they once had.
Economic growth in the U.S. is slowing and potential takeovers face stiffening headwinds from rising interest rates that make financing such deals much more expensive.
Kohl’s is now battling higher costs and a pullback from its price-conscious shoppers who are being more cautious with their spending in the face of rising prices for gas, food and just about everything else.
Every extra dollar that must be spent on fuel or food isn’t available to be spent on anything else.
The deteriorating retail environment isn’t limited to Kohl’s.
Just weeks after telling its investors what to expect in the year ahead, the luxury furniture chain RH revised those expectations lower Thursday, citing worsening macro-economic conditions and rising mortgage rates.
The day before, the CEO of retailer Bed, Bath & Beyond was ousted after another dismal quarter of sales.
Kohl’s sales, earnings outlook dims
Meanwhile, Kohl’s said its secondquarter earnings report will likely show lower-than-forecast sales.
“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 (the second quarter) as compared to our prior expectations of down low-single digits relative to last year,” the company said in a statement.
“The company is taking actions to navigate this environment and will share more when it releases (second quarter) earnings on August 18,” it said.
Pressure on Kohl’s to sell the company came from activist investor Macellum Capital Management.
Kohl’s shareholders in May voted overwhelmingly in favor of the company’s slate of candidates for the board of directors, thwarting Macellum’s campaign.
Macellum says Kohl’s stock has underperformed and that the company should be sold.
Nationwide, Kohl’s has more than 1,100 stores and about 100,000 employees.
Kohl’s has about 8,000 employees in Wisconsin, including 4,000 at the Menomonee Falls headquarters.