Kohls (KSS)($45.59) has hung a for-sale sign on its doors. News broke late on Monday that it had entered into a three-week exclusive negotiation period for a potential sale with Franchise Group (FRG)($38.77), a holding company which owns The Vitamin Shoppe and other retail brands. Franchise Group has proposed to buy Kohl's for $60 a share. On Monday, Kohl's stock closed at $42.12 and rallied 8.24% during Tuesday's trading hours. With more than 1,100 US stores and around $19 billion in annual sales, Kohl's is the largest department store chain in the United States.
The news is seen as a step forward, especially after more than a year of activist approaches, breakup proposals and rebuffed board shake-up plans. On its first-quarter earnings call on May 5, Franchise Group reported 82% revenue growth to $1.1 billion and reaffirmed its full-year sales target of $4.4 billion. By comparison, Kohl's Q1 sales, reported on May 19, fell 5% to $3.7 billion. The latest bid also comes at a challenging time for the legacy big box retail store format, whose ongoing digital transformation before and during the pandemic has been further burdened with recent supply chain and inventory issues.
Why it matters
Department stores, including Kohl's, have been undercut on prices by discount players from the bottom and prestige by luxury stores at the top. The company has attempted multiple revenue-boosting strategies that have not led to major improvements at Kohl's—leaving analysts to wonder how FRG can look to eke out a profit from an ailing industry/retailer.
