Nordstrom (JWN) is returning to its private roots after years of earnings struggles and investor indifference.
The founding Nordstrom family, who owned a roughly 33% stake, teamed up with retail investor El Puerto de Liverpool, owner of a 10% stake, to take the company private. El Puerto is a real estate and department store conglomerate that has boutiques with known names like Gap, Banana Republic, and Williams Sonoma, among others, in addition to department stores and other format retailers.
Both will acquire all outstanding shares in an all-cash deal valued at about $6.25 billion.
The 123-year-old retailer, based in Seattle, Wash., has 381 locations, including 93 Nordstrom and 280 Rack locations, a growing business for the brand.
Following the close of the transaction, expected in the first half of 2025, the Nordstrom family will have a majority ownership stake. Two-thirds of the company’s shareholders must approve the deal.
Each shareholder will get $24.25 cash for each share held. The offer price, a hair above the current stock price of $24.19, is a nearly 36% premium to where shares started the year at $17.78.
Morningstar analyst David Swartz was “disappointed by the final offer as it is well below” his $38.50 per share valuation.
In 2018, the company’s board rejected the Nordstrom family’s offer to take it private at around $50 per share. Its net earnings have dropped 76% from 2018 to 2023.
But Swartz expects the deal to go through “at the proposed price” since the Nordstrom board of directors, including Erik and Pete Nordstrom, unanimously approved the deal and there has been a “lack of any (apparent) opposition.”
Swartz thinks both the Nordstrom family and El Puerto de Liverpool are getting a “good deal” despite his misgivings about the price.
“Although we do not expect opposition, we are disappointed that shareholders will not receive a price closer to our prior valuation and believe that the Nordstroms and El Puerto de Liverpool are acquiring Nordstrom at a time when its results are depressed,” he added.
Yet, he believes that “public shareholders have been unwilling to give strong valuations to department store companies.”
The company has been posting positive growth recently.
Nordstrom’s third quarter same-store sales grew 4% for the namesake brand. Sales at its off-price business, Nordstrom Rack, grew 3.9%.
Analysts estimate Nordstrom’s full-year fiscal 2024 sales at $14.5 billion, slightly more than the $14.2 billion last year.
Nordstrom has been performing better compared to its department store peers as it leans into e-commerce. Jefferies analyst Ashley Helgans said that Nordstrom has benefited from “leading with brands first and price second.”
The company has also focused on “improving selection and depth of customers’ favorite brands,” from Deckers’ (DECK) running sneaker brand Hoka and On Holding’s (ONON) performance shoes to dressy and contemporary men’s apparel brands.
But Nordstrom is still staying cautious as it struggles against a shorter holiday season, uneven consumer spending habits moving into the new year, and an “uncertain” external environment.
“Across all of our businesses … we saw a slowing in the trends” starting the last week of October, CEO Erik Nordstrom said on an earnings call.
GlobalData’s managing director of retail Neil Saunders told Yahoo Finance being private would allow Nordstrom to make long-term decisions without having to answer to the pressure of the public market.
“While a change in ownership does not automatically remedy all of the problems with the department store operation, it will allow the family and their backers to take a long term view of the business and make necessary investments and changes away from the short term scrutiny of public markets,” Saunders said in an email.
He added that the business is not what it once was.
“A lot of change and investment is needed to remedy recent missteps with merchandising, operations and store standards. The family have the talent and ability to enact change as does El Puerto de Liverpool. They will likely run the business as a retailer rather than as some kind of financial play … which, in our view, is a very positive thing for the long term health of the brand,” he said.
SAN DIEGO, CALIFORNIA – DECEMBER 5: Shoppers walks into a Nordstrom store at the Westfield UTC shopping center on December 5, 2024 in San Diego, California. (Photo by Kevin Carter/Getty Images) ·Kevin Carter via Getty Images
Nordstrom hasn’t been alone in its struggles.
Macy’s (M), Kohl’s (KSS), and Nordstrom are fighting to stay in the game by closing lagging stores and pouring money into online operations as they look to compete with the rise of retail behemoths Amazon (AMZN), Walmart (WMT), and Target (TGT). That’s in addition to the rise of off-price retailers such as Ross Stores (ROST) and TJX Companies (TJX), which owns TJ Maxx and Marshall’s.
“One of the things that we’ve seen in retail the last couple of quarters is an acceleration of the bifurcating trends in retail, between market share winners such as off-price and other specific brands that have newness and innovation that are comping quite positively, and a tougher trend in department stores overall,” Brooke Roach, a vice president at Goldman Sachs, told Yahoo Finance.
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Brooke DiPalma is a senior reporter for Yahoo Finance. Follow her on Twitter at @BrookeDiPalma or email her at bdipalma@yahoofinance.com.
