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Nordstrom (JWN) Dips as Buyout Talks Dwindle: Is It Time to Buy?

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On Wednesday, shares of upscale department store Nordstrom Inc. (JWN - Free Report) are falling, down nearly 5% in afternoon trading after Women’s Wear Daily reported that time is running out for the retailer to secure a formal sale or continue with buyout negotiations.

It was just a few months ago that Nordstrom announced exploration plans to go private, sending its stock up 20% as a result. The company explained in a news release that its Co-Presidents Blake Nordstrom, Peter Nordstrom, and Erik Nordstrom, in addition to President of Stores James Nordstrom, Chairman Emeritus Bruce Nordstrom, and Anne Gittinger formed a group, along with a number of independent directors to “explore the possibility of pursing a ‘going-private-transaction.’”

The private transaction that was previously being considered would see the group formed by the Nordstrom family acquiring 100% of JWN’s outstanding shares of common stock. At the time, the group had not yet made any formal proposal regarding a potential private transaction.

And just last week, Reuters reported that the Nordstrom family was offering preferred equity to potential private-equity partners, naming firms like KKR (KKR - Free Report) , Apollo Global Management (APO - Free Report) , and Leonard Green & Partners, in order to fund a buyout.

Now, it seems that plans have changed. WWD spoke with various bankers, and while they were originally “hoping to funnel billions of debt into the deal [they are now] getting anxious because the window to do a deal this year is narrowing.”

According to one banker, Nordstrom would need to be out of the market by early November for a transaction like this to occur, which “means you have to basically have a deal announced by the beginning of October."

Citing sources, WWD said that Nordstrom is still having conversations with potential buyers, but these discussions are being described as “informal” and “just talks.”

Nordstrom has not been able to escape the woes affecting the entire retail industry, especially those afflicting its department store peer Macy’s (M - Free Report) . Even upper-end retail rival Neiman Marcus, which is private equity-owned, has struggled with debt due to the dominance of online shopping.

Nordstrom reportedly hopes to focus and invest more in its e-commerce division and Nordstrom Rack discount chain as a private company, in addition to closing underperforming stores. The retailer also hopes to worry less about quarter-to-quarter trends.

Should You Buy?

Currently, JWN is a #3 (Hold) on the Zacks Rank, with a VGM composite score of ‘A.’ Nordstrom is set to report its next quarterly earnings on August 10 after the bell, and Zacks expects the retailer to post earnings of 61 cents per share on revenues of $3.72 billion. This represents a year-over-year loss of 8.41% and year-over-year growth of 1.94%, respectively.

Last quarter, Nordstrom’s earnings were weaker-than-expected. While the company has a solid average earnings surprise of nearly 41%, the company doesn’t expect to grow its earnings on a full-year basis. Weak traffic in its full-line stores has no-doubt hurt contributed to its lack of short-term earnings growth.

Looking at its valuation metrics, Nordstrom has a forward P/E of 16.49. While the stock has cheapened over the past year, the company is still more expensive than its overall industry’s P/E of 12.60. Investors, however, have always been willing to pay a little bit more for JWN because of their perceived stature throughout the department store space, and this high-end status will likely continue to work in Nordstrom’s favor.

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