Why Nordstrom Closes Canadian Stores By Next June – Reports Q4 Results

There was a need to close the Canadian operation after a very weak 4^th quarter 2022. Nordstrom
JWN
has six main stores and 7 Rack stores in Canada. Their weak sales and earnings contributed to the overall poor performance in the quarter.

In the fourth quarter that ended January 28, 2023 sales decreased 4.1 percent versus the same period in fiscal 2021. Net sales for Nordstrom’s main stores decreased 2.4 percent while Rack stores sales decrease 8.1% in the same period. Digital sales in the fourth quarter decreased by 13.1%. Management indicated that the elimination of Nordstrom Rack digital orders in the third quarter as well as closing down Trunk Club earlier in fiscal 2022 negatively impacted fourth quarter digital sales by about 500 basis points. Digital sales were 18% of total sales for the fiscal year.

For the full year, the company reported net sales of $15.1 billion compared to fiscal 2021 net sales of $14.4 billion, an increase of 4.8%. Net earnings were $248 million compared to $178 milion.an increase of 39%. Fully diluted earnings per share rose to $1.51 a share in fiscal 2022 compared to $1.10 a share in fiscal 2021.

What happened in Canada?

Nordstrom opened its first Canadian store in 2014 in Toronto. There are now 6 Nordstrom stores and 7 Rack stores. 2,500 associates will lose their job. Here are all the closings by provinces.

Alberta – 1 Nordstrom stores and 2 Rack stores

British Columbia- 1 Nordstrom stores and 1 Rack store

Ontario – 4 Nordstrom stores and 4 Rack stores

Major shopping center locations in Eaton Center, Yorkdale Center, Sherway Gardens in Toronto, Chinook Center in Calgary and Pacific Center in Vancouver will be affected by the closing.

Management indicated that in order to have long term profitable growth and enhance shareholder value and after careful consideration of all reasonable available options, the company decided to discontinue support for Nordstrom Canada’s business operation. Accordingly, Nordstrom Canada has commenced a wind-down of its operation, obtaining an Initial Order from the Ontario Superior Court of Justice under the Companies’ Creditors Arrangement Act (CCAA) to facilitate the wind down in an orderly fashion

The company expects that Nordstrom Canada will be deconsolidated from Nordstrom’s financial statements as of the date of the CCAA filing. (That would be March 2, 2023.) Management says that it expects to report approximately $350 million of pre-tax charges related to the wind-down in the first quarter of fiscal 2023. This write-down is driven primarily by Nordstrom’s investment in Nordstrom Canada. The write-down is expected to result in an approximately $40 million decline in total Company net sales and a $35 million improvement in Nordstrom’s EBIT earnings for 2023 versus 2022.

The closing of the 13 stores is the result of COVID-19 effect on shopping. Many transactions transferred to e-commerce. Hudson Bay’s strong competition was also a factor and one can suspect that the weak performance of the New York store sapped the attention of Nordstrom’s management.

Here is the good news.

Management’s fiscal outlook projects a retail sales outlook (including a 53^rd week which the whole retail industry is embracing)

1. Revenues decline 4-6 percent. This includes a 250-basis point negative impact from the Canadian wind-down, and a positive contribution of 130 basis point from the 53^rd week.

2. EBIT margin decline of 1.2 to 2.1 percent of sales includes the impact of wind-down of Canada

3. Adjusted EBIT margin. This excludes charges from Canadian wind-down. 3.7 to 4.2 percent of sales

4. Income tax rate will be about 32 percent including 500 basis points unfavorable impact from Canadian write-down.

5. EPS rate including 500 basis points unfavorable impact from Canada is expected to be $0.20 to $0.80

6. Adjusted EPS excluding wind-down of Canadian operation of &1.80 to $2.20, and excluding share repurchases

The company plans to open 20 Rack stores during fiscal 2023. It will have 260 Rack stores at the end of this current fiscal year.

POSTSCRIPT: Shortly after the Toronto store opened, I visited the store in Yorkdale Center and found it beautiful. It appeared to attract many customers. The Canadian operation was too far away to have management’s daily attention and CODID-19 caused a big problem. One must congratulate management for taking the right steps at the right time. One wonders if the excellent locations in Canada’s prime shopping centers might not be attractive to other retailers.