Nordstrom Rallies On Plans To Go Private: More Upside Left?

Consumers’ transition toward online shopping is troubling most retailers, as they are struggling to keep pace with the major online players in the industry. Amid such a scenario where retailers are trimming their store count and declaring bankruptcy in response to sluggish traffic, guess what Nordstrom, Inc. (NYSE:JWN) is up to that caused its shares to move up 10.3% yesterday.

Well, Nordstrom’s family is contemplating plans to go private.

If talks regarding the company going private can drive such positive sentiments among investors, it is to be seen how the stock will actually react if the plans are put to action. Incidentally, yesterday’s surge helped this Zacks Rank #3 (Hold) stock to outperform the Zacks categorized Retail – Apparel/Shoe industry. So far this year, Nordstrom’s shares have lost 14.2%, while the industry was down 21%.



Nordstrom to Go Private?

The company’s three Co-Presidents – Blake W. Nordstrom, Peter E. Nordstrom and Erik B. Nordstrom; President of Stores – James F. Nordstrom; Chairman – Emeritus Bruce A. Nordstrom, and Anne E. Gittinger, together constitutes the Nordstrom family. The Seattle-based company announced that the family (“Group”) is seeking viable options of taking the company private, by buying all the outstanding shares of Nordstrom.

Sources revealed that Nordstrom’s family already owns about a 31% stake in the company, and it will need over $5 billion (given Nordstrom’s current market cap) to acquire the remaining stake. Going private could be a prudent move for Nordstrom’s family, as it will help them to reshape the organization and overcome the retail hurdles, which is not all that easy as a public entity. However, the headwinds plaguing the department store sector may likely be a hurdle for the Group to amass the requisite funds.

A Glimpse of Major Deterrents

While Nordstrom’s net sales advanced 2.7% to $3,279 million in the last reported first-quarter fiscal 2017, management remained disappointed with the performance. In fact, net sales received about 24% contribution from e-Commerce sales, which has been gaining ground of late. Further, total comps dipped 0.8% mainly due to lower comps in Nordstrom’s full-line stores.

Clearly, with the digital transformation in shopping and consumers splurging online, store and mall traffic has been hit hard. As a result, most retailers including big-box ones are struggling to compete with e-Commerce giants like Amazon.com, Inc. (NASDAQ:AMZN) . Consequently, retailers are now concentrating on enhancing their omni-channel capabilities, optimizing store fleet and restructuring activities.

Evidently, major departmental store retailer Macy’s, Inc. (NYSE:M) recently warned investors that its margins may continue to feel the pinch, as a result of the aforementioned hurdles. Thus, the company announced a slew of measures revolving around stores closures, cost containment, real estate strategy and investment in omni-channel capabilities to enhance sales, profitability and cash flows. (Read More: Macy's Slumps on Margin Woes: 3 Retailers that Followed Suit) Also, apparel and shoe retailer, American Eagle Outfitters Inc. (NYSE:AEO) announced plans to shutter 25–40 stores in fiscal 2017 when it released its first quarter results last month. Moreover, in an effort to better align its stores with omni channel network and utilize capital resources efficiently, J. C. Penney Company, Inc. (NYSE:JCP) announced strategic initiatives, wherein it will shut down two distribution facilities as well as nearly 130–140 stores. However, Nordstrom hasn’t announced any store closure plans.

The Company’s Call

While there was no formal proposal by the Group to Nordstrom, the latter’s board of directors has organized a special committee. This “Special Committee” that consists of Nordstrom’s independent directors, will act on the company’s behalf on anything related to the aforementioned privatization.

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