What happened

Shares of Kohl's (KSS 1.41%) flamed out on Friday, falling as much as 22.5%. As of 2:05 p.m. ET, the stock was still down 16.9%.

The catalyst that sent the retailer plunging was the company's decision to end buyout talks without a deal.

So what

Kohl's is one of a number of brick-and-mortar retailers that have struggled in recent years, as the ease and convenience of digital retail siphoned shoppers away from physical locations. Many investors had hoped that talks between Kohl's and Franchise Group (FRG) would result in the retailer being bought out.

The company dashed those hopes today, announcing that Kohl's concluded its "strategic review process" and ended its exclusive talks with Franchise Group without securing a deal.The operator of The Vitamin Shoppe was granted a three-week exclusive window to conduct its due diligence and secure financing after its proposal to acquire Kohl's for $60 per share. 

The companies didn't explain exactly why they were unable to reach an accord, but dropped some hints. Kohl's board chair Peter Boneparth said in a statement, "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."

This suggests that after reviewing its books, Franchise may have wanted to pay a lower price for Kohl's.

Now what

Kohl's tried to put the best possible spin on its decision, saying it's "a financially strong company that generates substantial free cash flow and has a clear plan to enhance its competitive position and improve performance over the long term."

Perhaps more telling for investors, however, the company updated its outlook for the second quarter, citing inflationary pressures and cutting its guidance. Kohl's now expects year-over-year sales to be down high-single digits, after previously expecting a shortfall in the low-single digits. 

The secular headwind of e-commerce may have slowed, but shows no signs of abating. While a turnaround for the struggling retailer is certainly possible, there are no guarantees. That makes Kohl's less of an investment and more of a gamble.