Stocks seesawed between positive and negative territory on Thursday and finally ended up generally flat. The Dow Jones Industrial Average (DJINDICES:^DJI) and S&P 500 (SNPINDEX:^GSPC) eked out small gains.
Today's stock market
|Index||Percentage Change||Point Change|
Apparel retailers that rely on brick-and-mortar stores for growth have been struggling recently as consumer habits shift to online shopping. The stocks of two companies coping with the new reality moved in different directions today: Nordstrom, Inc. (NYSE:JWN) rose on news of a potential buyout, and Urban Outfitters (NASDAQ:URBN) sank after disclosing continuing sales declines.
Nordstrom family considers a take-out bid
Shares of fashion specialty retailer Nordstrom jumped 10.3% today after the company announced that members of the Nordstrom family are exploring the possibility of taking it private. According to a press release from Nordstrom, company Co-Presidents Blake W. Nordstrom, Peter E. Nordstrom, and Erik B. Nordstrom; President of Stores James F. Nordstrom; Chairman Emeritus Bruce A. Nordstrom; and the founder's heiress Anne E. Gittinger have formed a group to explore the possibility of taking ownership of 100% of the outstanding shares. The company's board of directors has also formed a committee and retained legal counsel to work on behalf of shareholders for any such transaction.
Private ownership of Nordstrom by the family would be coming full circle for the company. The business started with a shoe store in Seattle, Washington, founded by Swedish immigrant John W. Nordstrom in 1901. Ownership and management of the company was handed down in the family, and the third generation of Nordstroms took the company public in 1971. The fourth generation continues to hold top management positions, and according to recent SEC filings, the family owns 31.2% of the outstanding shares.
Investors have been unhappy with pressure on same-store sales, and the share price has declined from over $80 in 2015 to around $45 today. But Nordstrom's business has actually been very sound overall, with slow, but steady overall growth, including last quarter's 3% revenue gain and 37% jump in net earnings. Offsetting a decline in same-store sales from its full-line stores, Nordstrom is generating growth from its off-price Nordstrom Rack stores, its online store, and by opening new locations. Nevertheless, the market punished the stock when the report came out.
It's likely that the Nordstrom family doesn't feel the market is recognizing the company's long-term value and is fed up with the declining stock price. Given the family history, ownership, and involvement in management, there is little to suggest the effort to take the company private won't be successful if the group decides to proceed with it, although the final price is a big unknown at this point.
Urban Outfitters' worse-than-expected sales decline
Shares of Urban Outfitters fell 10.3% after the company disclosed that same-store sales in the current quarter are slower than had been projected less than a month ago when first-quarter results were announced. The bad news was given in a single sentence in the 10-Q filing with the SEC: "Thus far during the second quarter of fiscal 2018, comparable Retail segment net sales are high single-digit negative."
Chief Financial Officer Frank Conforti provided some additional detail during a presentation at the Baird Global Consumer, Technology & Services Conference. In the quarter so far, same-store sales declines have been in the high single digits for the company's Urban Outfitters brand stores and Anthropologie stores. Urban's Free People stores are seeing low-single-digit declines. The main issue has been with women's apparel, and the lower sales will result in lower margins than expected this quarter, as the company will increase markdowns in order to keep inventories at reasonable levels.
Conforti cited the difficult environment for apparel retailers as consumers shift to online shopping, and stated that he expected "choppy waters" for a couple of years to come.
That gloomy outlook reflects a common opinion in the market these days, and illustrates why shares of many specialty apparel retailers continue to be relegated to the sale rack.