Kohl's stock surges on report bidders are still competing for company amid market volatility

Kohl’s shares climbed 12% Wednesday, on hopes the retailer could still be bought following recent volatility in the market and a disappointing earnings report.

A Reuters report said bidders competing to buy Kohl’s are preparing to make binding offers, albeit lower than the indicative bids. Kohl’s had said last week that fully financed bids would be due in the coming weeks, and CEO Michelle Gass said she was “pleased” with the interested parties.

Reuters, citing people familiar with the matter, reported Wednesday that bidders plan to lower their offers by at least 10% to 15%.

Reuters said bidders include private equity firm Sycamore Partners, brand holding firm Franchise Group and a duo of Simon Property Group and Brookfield Asset Management. However, a person familiar with the matter told CNBC that Simon Property Group, the biggest U.S. mall owner, is not planning to make a bid for Kohl’s.

Representatives from Kohl’s and Sycamore declined to comment. Representatives for Franchise Group and Simon weren’t immediately available.

Retail stocks have taken a beating in recent days amid broader market volatility as quarterly reports from a number of retailers including Walmart, Abercrombie & Fitch and Kohl’s have revealed changing consumer behaviors amid inflation at a 40-year high and ballooning inventory levels.

Earlier this year, Kohl’s rejected an offer of $64 a share from Starboard Value-backed Acacia Research for being too low. Reuters reported Wednesday some bidders had indicated they were willing to pay at least $70 a share.

But investors have since lost some confidence that any deal would go through, given the state of the economy and the difficulty to secure financing in the current environment. Kohl’s shares opened Wednesday at $36.81, having fallen about 40% this month alone.

Kohl’s last week cut its full-year profit outlook, with Gass saying fiscal 2022 started off below her expectations. The company said it doesn’t anticipate headwinds from inflation pressures to abate in the near term.

The retailer also announced it was losing its chief merchandising officer and chief marketing officer. Searches for their successors are underway.

The turmoil for Kohl’s comes as the retailer faces amplified pressure from activist hedge fund Macellum Advisors to sell the business and shake up its board. Earlier this month, Kohl’s managed to fend off Macellum’s proposal for a new slate of directors.

Macellum has argued that Gass’s efforts to expand sales and win new customers haven’t been enough relative to its competition.

This isn’t the first time Macellum has put pressure on Kohl’s. The two struck a deal in April 2021 to add two directors from a slate pushed by a group of activists, including Macellum. Kohl’s also appointed one independent director, with the activists’ backing.

Gass, who assumed the CEO role at Kohl’s in May 2018, has tried a number of strategies to lure customers into stores, including signing a partnership with Amazon and adding Sephora beauty shops to hundreds of Kohl’s locations. 

On Wednesday morning, the company announced it will open 100 small format shops in the next few years in markets that Kohl’s doesn’t currently serve. It also said it plans to ramp up investments in all of its stores in the coming years, though it didn’t say how much money it plans to commit to these efforts.