In March 2018, the board of directors at Nordstrom turned down a take-private offer from LGP worth $50 per share, saying the $8.4 billion bid undervalued the department store chain. On the surface, it seemed the board had a clear point: Nordstrom's stock was trading for more than $50 per share at the time. But a closer look revealed that shares in Nordstrom had spent much of the prior two years trading at lower levels, as the company struggled to avoid the pitfalls that have taken down so many other retailers that do most of their business in shopping malls.
For the next several months, it appeared the board had the right idea, as Nordstrom's stock climbed to above $65 per share by the fall. But last November, Nordstrom reported underwhelming earnings that led to a double-digit dip. And as the rest of the stock market has bounced back in the first half of 2019, the Seattle-based retailer has seen its share prices decline even further, including a drop of more than 20% in the month of May alone.
That included another subpar earnings report on May 21, one that prompted company co-president Erik Nordstrom to offer public reassurance to shareholders. "This is well within our control to turn around," he said in a press release at the time.
But is it? The bad news is running rampant across the entire apparel retail industry, as heavyweights like Gap, Abercrombie & Fitch and Canada Goose also reported worrisome financial results for 1Q 2019. In all, the apparel retail sector saw a 24% YoY decline in earnings during the quarter, according to CNBC, which cited data from Retail Metrics. And those are the companies that are still in business. Dozens of other retailers have gone bankrupt in recent years, and UBS released a report earlier this year estimated 75,000 individual retail stores could shut down by 2026.
Perhaps Nordstrom will find a way out of the morass. Perhaps Leonard Green & Partners had a plan that would have saved the day, or at least one that would have allowed it to extract a hefty dividend or two in the meantime.
But the past few years have indicated that the continuing rise of online shopping and other alternatives to old-school malls could be too much to overcome. Considering that—and considering stock in Nordstrom closed Thursday trading at $31.05 per share, nearly 38% less than the $50-per-share offer LGP submitted last year—it's perhaps for the best that the firm's attempted takeover of Nordstrom never came to pass.
Featured image via JJBers/flickr/CC BY 2.0
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