Nordstrom (JWN) is up sharply today (+14%) on news that members of the Nordstrom family may make an offer to take the company private. To provide a little background, Nordstrom has an interesting history. It was founded in 1901 as a retail shoe business in Seattle and it has grown to become one of the leading fashion specialty retailers in the US.
It operates 354 US stores located in 40 states as well as a robust ecommerce business through Nordstrom.com, Nordstromrack.com/HauteLook and TrunkClub.com. Its stores are primarily on the west and east coasts of the US. It also operates five Nordstrom full-line stores in Canada. The company also owns Trunk Club, a personalized clothing service serving customers online at TrunkClub.com and its seven clubhouses.
JWN has two reportable segments: Retail and Credit. The Retail segment includes its 122 Nordstrom-branded full-line stores in the US and Nordstrom.com, 221 off-price Nordstrom Rack stores, five Canada full-line stores, Nordstromrack.com/HauteLook, seven Trunk Club clubhouses and TrunkClub.com etc.
The retailer offers an extensive selection of brand-name and private label merchandise focused on apparel, shoes, cosmetics and accessories. Nordstrom Rack stores purchase merchandise primarily from the same vendors carried in Nordstrom full-line stores and also serve as outlets for clearance merchandise from its Nordstrom stores and other retail channels. Nordstromrack.com/HauteLook offers a persistent selection of off-price merchandise, as well as limited-time sale events on fashion and lifestyle brands.
Through its Credit segment, customers can access a variety of payment products, including a Nordstrom-branded private label card, two Nordstrom-branded Visa credit cards and a debit card for Nordstrom purchases. When customers open a Nordstrom credit or debit card, they also join the loyalty program that provides benefits based on their level of spending. Although the primary purpose of the Credit segment is to foster greater customer loyalty and drive more sales, JWN also receives credit card revenue.
Turning to today's news, members of the Nordstrom family (Co-Presidents Blake Nordstrom, Peter Nordstrom, and Erik Nordstrom, President of Stores James Nordstrom, Chairman Emeritus Bruce Nordstrom and Anne Gittinger) have formed a group to explore the possibility of pursuing a "going private transaction." Basically, the family would buy 100% of the stock and take it private. The Group has not made a formal proposal to the company at this point, but the board of directors has formed a special committee to explore a possible transaction.
So why would the Nordstrom family want to take the company private? They do not provide specifics in the press release, but Briefing.com surmises that the family is probably pretty frustrated with the stock performance. This was an $80 stock as recently as August 2015. Just two years later, it has been nearly cut in half, closing yesterday at $40.48.
The retail sector has been tough lately. Many department stores, including Nordstrom, have been reporting sluggish sales. Mall traffic has been down across the board as consumers are moving more to online shopping. With that said, JWN has done a good job of boosting its online presence. In fact, in its most recent earnings report, JWN said that online sales represented 24% of total sales in Q1 (Apr). That's a pretty large number so the company is doing a good job on that front, but mall traffic overall remains weak.
In sum, the Nordstrom family is probably thinking that with the stock down, now is the time to take advantage of it and take the company private. It would allow the company to take a longer term view and not worry about how Wall Street will react to every quarterly report. At this point, we do not know a dollar amount, but we expect the family will come forward with a specific offer soon.
From a broader perspective, this could rejuvenate the dampened stock prices of other beaten down retailers as perhaps others may get taken private. Keep an eye on peers: Macy's (M) +3.9%, Kohl's (KSS) +3.2%, JC Penney (JCP) +2.4%, Dillard's (DDS) +2.4%, Ralph Lauren (RL) +1.6%, Abercrombie & Fitch (ANF) +1.4%, Michael Kors (KORS) +1.3%, Gap (GPS) +1.2%.