Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Nordstrom Lacks Cash

Don't let it get away!

Keep track of the stocks that matter to you.

Help yourself with the Fool's FREE and easy new watchlist service today.

Retail stocks are getting sliced up and fried like shrimp on a grill. After disappointing earnings from department store J.C. Penney (NYSE: JCP  ) and upscale retailer Liz Claiborne (NYSE: LIZ  ) , it shouldn't be any surprise that Nordstrom (NYSE: JWN  ) failed to escape the general malaise. However, Nordstrom is facing what could be a much bigger, company-specific land mine that could really cause problems if the economy goes from bad to only slightly worse.

Last quarter's sales decline of 8.3% to $165 million certainly wasn't pretty. Nor were earnings that came in at half of last year's levels -- $0.33 per share versus $0.69 in 2007.

That's not the red flag though. Rising interest expenses and a troublesome dip in cash on hand are worrisome signs of a potential cash crunch. And given the current market environment, the last thing any company needs is a major cash shortage.

Running out of money?
Nordstrom's debt-to-equity ratio was 2.28 as of last quarter, up from 0.29 just a couple of years ago. That means the company is having to get used to larger-than-normal interest payments that could eventually chew into the bottom line. And although debt levels aren't wildly excessive, shareholder equity has also seen a steep decline.

In addition, other parts of the balance sheet foster concern. Nordstrom has $68 million in cash on hand, versus $108 million last year. The accounts receivable figure is higher by $184 million. (On the surface a high accounts receivable number may seem like a plus, but you can't pay your bills with IOUs.) Current liabilities and long-term debt are also higher than year-ago levels, as are interest expenses.

Granted, the problem doesn't seem to be immediate. If holiday shopping is even halfway decent this year, the resulting cash flow should help replenish that flagging cash balance. After the holiday rush, however -- when retail sales historically fall off a cliff -- the company may really start feeling the costs of higher debt-service expenses and weakened margins. That could put Nordstrom in a hole it won't easily crawl out of.

If you're looking for a retailer with less debt and interest expense vulnerability, take a look at Kohl's (NYSE: KSS  ) and the often-forgotten Men's Wearhouse (NYSE: MW  ) . They're tightly run ships, with Kohl's interest expense making up just 2% of gross profits. Men's Wearhouse averages just 0.4%. For comparison, Nordstrom's interest expense figure clocks in at 5.3% of gross profits -- which is quite a bit when your net margins are so narrow.

Also worth a look:

James Brumley doesn't own stock in any of the companies mentioned above. Try any of our Foolish newsletters today, free for 30 days. You can read about the Fool's disclosure policy right here.

Read/Post Comments (2) | Recommend This Article (6)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 18, 2008, at 7:12 PM, annimoon wrote:

    I can't say that I am entirely surprised that Nordstrom is in this place considering the massive internal changes the company has gone through with the changing of hands from the original owner to the sons, the change in the overall corporate structure & business plan and the massive expansions. The store might have faired better if we were in a stronger economic climate, however, this decline was already visible and inevitable based on the drastic changes due to the massive expansion. Sadly this company has slipped from it's original foundations and it is paying dearly for it now. Karma anyone?

  • Report this Comment On January 23, 2009, at 11:54 AM, ocdgirl2000 wrote:

    The really interesting Karma is that Ebay has been trying desperately to be just like Nordstroms! In fact, one of the principles they adhere to is the "Nordstroms Business Model". And they have gotten the same results! Too bad, they let go of a highly successful business in oder to follow in the footsteps of a dinosaur .

Add your comment.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 778444, ~/Articles/ArticleHandler.aspx, 10/27/2016 9:18:14 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 12 hours ago Sponsored by:
DOW 18,199.33 30.06 0.00%
S&P 500 2,139.43 -3.73 0.00%
NASD 5,250.27 -33.13 0.00%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/26/2016 4:01 PM
JWN $54.03 Down -0.11 +0.00%
Nordstrom CAPS Rating: ****
JCP $8.41 Up +0.04 +0.00%
J.C. Penney CAPS Rating: *
KATE $16.72 Up +0.10 +0.00%
Kate Spade and Com… CAPS Rating: ***
KSS $43.75 Up +0.24 +0.00%
Kohl's CAPS Rating: **
TLRD $16.70 Down -0.24 +0.00%
Men's Wearhouse CAPS Rating: **