Kohl’s retools its plans now that acquisition deal with FG has tanked

Menomonee Falls, Wis. – Kohl’s had more than 25 potential buyers kicking the tires until recently, so will it look to re-engage with one of them?

In a word, no. After Kohl’s potential acquisition deal with Franchise Group was called off, the company announced this morning that there will be no more work on that issue, in part because of the financing and retail environment.

As for the retail environment, Kohl’s also announced that business is even softer than it had anticipated. The company this morning adjusted its expectations down accordingly. It now forecasts sales to be down high-single digits for Q2, as compared to prior expectations of down low-single digits relative to last year.

The board this morning said it is also considering monetizing some of the company’s real estate – a move some retail analysts had speculated was a significant lure for Franchise Group. Ironically, while Kohl’s was locked in a tussle with activist shareholders over the spring, the retailer highlighted opinions from two proxy advisory groups that warned the activists might be more interested in sacking Kohl’s real estate than righting the retail business. The company operates more than 1,100 stores.

This morning, Kohl’s pointed to the expansion of Sephora shop-in-shops as a key strategy for driving store traffic, growing comps and attracting new customers. Now in a little over 200 stores, the Sephora at Kohl’s shops will expand to more than 850 doors by the end of 2023.

In home, Kohl’s is looking to ancillary areas for growth. Sales in home tumbled 17% in the first quarter ended April 30 compared to a 30% increase in last year’s Q1. The company expects category demand to remain weak, CEO Michelle Gass told investors during its quarterly review call on May 19.

“We are adjusting to the new normal and continuing to pursue incremental areas such as outdoor furniture, expanded décor, kids bedroom furnishings and the pet category,” she said.

Kohl’s is planning a significant expansion in home décor this fall and is focused on building out categories where it has relatively low share.

On the brick & mortar front, the company this morning reiterated plans to open more than 100 smaller format stores over the next four years, which is projects will create a more than $500 million annual sales opportunity.

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