What happened

Shares of Nordstrom (NYSE:JWN) were falling today after reports emerged that rival Neiman Marcus was preparing to file for bankruptcy. Privately held Neiman Marcus is a high-end department store chain like Nordstrom, so investors seemed to think the news spelled trouble for the Seattle-based operator.

As of 3:08 p.m. EDT on Monday, Nordstrom stock was down 7.2%.

The Nordstrom men's store in New York City

Image source: Nordstrom.

So what

Rumors about Neiman Marcus going bankrupt had been swirling for years. The company carries a heavy debt burden of nearly $5 billion, and the weight of more than $300 million in annual interest payments has made it impossible to turn a profit and service all of its debt.

The chain now appears to be one of the first major retail victims of the coronavirus crisis as Reuters reported that the company was aiming to seek bankruptcy protection this week. In March, due to the pandemic, it temporarily closed all 59 of its stores, including Last Call and Bergdorf Goodman, and furloughed most of its 14,000 employees. 

Nordstrom may target a similar customer, but Nordy is not at an immediate risk of default. Prior to the crisis, Nordstrom was comfortably profitable with net income of $496 million. It has $2.7 billion in debt, but that is manageable for a company of its size. 

Now what

Like the rest of the apparel retail sector, Nordstrom is feeling significant pressure from the store closures that have resulted from the coronavirus lockdown. The company has drawn down its $800 million line of credit and secured $600 million in debt financing at 8.75% interest, showing the steep price retailers must pay for credit in the current crisis.  

Nordstrom is in a better position than most of its department store peers, but the company's position will deteriorate the longer the shutdowns last. It's unclear how much money the company is losing with stores closed, but it now has more than $2 billion in liquidity, including the $853 million in cash it finished the fourth quarter with. It's also slashing more than $500 million in operating expenses, capital expenditures, and working capital. Nordstrom also has a strong online business, which should give it some support in this trying time.