Nordstrom, investors might cash in with a Rack spinoff

Posted: 21 December 2021 6:22 pm
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Company reportedly hires consulting firm to help improve Rack’s performance amid a retail rebound and catching a spinoff trend.

Nordstrom has hired consulting firm AlixPartners to examine options to improve the performance and profitability of its off-price Nordstrom Rack division, according to a report from Bloomberg.

“We’ve taken a comprehensive look at opportunities to improve our business, engaging external consultants with function-specific expertise across three key areas: improving Nordstrom Rack performance, increasing profitability and optimizing our supply chain and inventory flow,” said CEO Erik Nordstrom during a third-quarter earnings call in November.

Nordstrom is “not satisfied at all” with its Rack business.

The external advisers are reportedly considering spinning off Nordstrom Rack into a separate company, a move explored by other retailers in recent months as online shopping continues to grow.

A trend to spinoff parts of department store

Earlier this year, Saks Fifth Avenue spun off its e-commerce business from its retail business into a standalone company. The company got a $500 million investment for the new e-commerce business from capital investor, Insight Partners, which will value it at $2 billion.

Macy’s is also working with AlixPartners to review its e-commerce operations. Macy’s CEO Jeff Gennette said during a third-quarter earnings call that the company recognizes “the significant value of the market at this time in a pure e-commerce businesses [sic]” and that it engaged AlixPartners to help in these efforts.

Most recently, the New York-based hedge fund Engine Capital sent the Board of Directors of Kohl’s a letter urging the retailer to consider a similar move to separate its retail business from its e-commerce business to boost its lagging stock price.

Department stores see improving sales

With lockdowns lifted, sales of several department stores have been on the rise this year. Stocks have surged, with many returning to, and exceeding, pre-pandemic prices before recent pullback.

The following department store stocks have since pulled back from their recent highs, though, so they might be buying opportunities.

Nordstrom

For the third quarter, Nordstrom reported earnings of $0.39 per share, up from $0.34 a year ago. Revenue climbed to $3.64 billion from $3.09 billion a year earlier. The company expects 2021 revenue, including retail sales and credit card revenues, to grow more than 35% over 2020 numbers.

Shares of Nordstrom climbed 300% from a 2020 low of $11.72 to a 52-week high of $46.45, which the company achieved in March of this year. The stock is currently trading at $20.63, down around 56% off this high.

Analysts rate Nordstrom stock a Hold with a price target of $25.56.

Macy’s

Macy’s reported third-quarter earnings and sales that topped analysts’ estimates. The company saw earnings of $1.23, beating analyst estimates of $0.31. Earnings were up from a loss of $0.19 a year ago.

Sales climbed to $5.4 billion from $3.99 billion a year earlier. This beat analyst estimates of $5.2 billion. Macy’s expects revenue for 2021 of $24.1 billion, up from $17.4 billion in 2020.

Macy’s stock grew more than 760% from a 2020 low of $4.38 to its 52-week high of $37.95, which it achieved last month. The stock has since pulled back, trading 36% lower at $24.47.

Looking ahead, analysts give the stock a Hold with a price target of $35.14.

Kohl’s

Kohl’s saw sales rise by 16% in the third quarter. The company reported revenue of $4.6 billion compared to $4 billion a year ago. Analysts were expecting revenue of $4.27 billion. Earnings grew to $1.65 per share from a loss of $0.08 per share a year earlier, outpacing estimates of $0.64.

After hitting a 2020 low of $10.89, Kohl’s stock grew 500%. The stock hit a 52-week high of $64.80 in May 2021 but has since fallen. Shares are trading around 25% lower at $48.75.

Analysts see the stock hitting $70.64 in the next 12 months, giving it a Buy.

Dillard’s

Dillard’s also reported stronger-than-expected financials for the third quarter. The company’s net sales grew to $1.5 billion, up from $1 billion last year and beating estimates of $1.3 billion. Earnings were $9.81 per share versus $1.43 in 2020. Analysts were estimating earnings of $5.52 per share.

Dillard’s sales and profitability have soared far beyond pre-pandemic heights in 2021. After hitting a 2020 low of $6.50 early in the pandemic, Dillard’s stock rocketed over 6,000% through November 2021 to an all-time high of $401.71.

Shares of Dillard’s are currently trading at around 38% off this high at $248.98. But analysts give the stock a Hold, as they can see the price declining even further to $213.75.

The value of any investment can go up or down depending on news, trends and market conditions. We are not investment advisers, so do your own due diligence to understand the risks before you invest.

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