Activist investor Ryan Cohen strikes again. This time, he’s staking a claim in luxury department store
Nordstrom
and launching a campaign intended to shake things up at the retailer.
The news sent
Nordstrom
(ticker: JWN) stock soaring last Friday, when it was reported by the Wall Street Journal. Fans of the move agree with William Blair analyst Dylan Carden, who wrote in a note that Nordstrom’s performance over the last decade “begs for an activist role.”
The stock has long underperformed both the broader market and its peers in the department store industry. Over the past five years, shares of Nordstrom have lost roughly half of their value. During that same period, shares of
Macy’s
(
M
) were down just 0.1% and
Kohl’s
(KSS) stock dropped 44%.
Dillard’s
(
DDS
), meanwhile, gained 537%, and the S&P 500 was up 50%.
Cohen plans to recommend cost-cutting measures as well as changes to the board of directors, a person familiar with the matter told Barron’s last week. The person added that Cohen has his sights set on removing former
Bed Bath & Beyond
(BBBY) CEO Mark Tritton from the board.
Cohen’s firm, RC Ventures, declined Barron’s request for comment on this report.
Nordstrom is the fourth retailer to come under Cohen’s microscope since August 2020, when he disclosed that RC Ventures had taken a major stake in videogame seller
GameStop.
Tritton was leading Bed Bath in March of 2022, when Cohen revealed he has done the same with the home goods retailer. Since then, he has also taken a stake worth hundreds of millions of dollars in Chinese e-commerce giant
Alibaba
(BABA).
Analysts are divided on the likelihood that Cohen will be successful in his attempts to turn Nordstrom’s around.
Carden, the William Blair analyst, points out that the Nordstrom family owns about 30% of the company, making it difficult to make changes without their backing. A Nordstrom spokesperson previously told Barron’s in an email that while Cohen hadn’t sought any discussions with the company, it was “open to hearing his views.”
That said, Carden believes investors could react favorably to a plan that aims to streamline the business and grow margins.
Citigroup analyst Paul Lejuez was less convinced. The problem with Nordstrom isn’t the company, but rather the department store model itself, he wrote in a research note on Monday.
“Though the headline of activist involvement can clearly move the stock on a short-term basis, we are not sure there is much an activist can do to improve the business,” he wrote. Department stores are “structurally challenged,” Lejuez added, and not well positioned for the current retail landscape where consumers are increasingly shifting to e-commerce and direct-to-consumer brands.
Cohen’s previous efforts to revive struggling retailers had mixed results.
At GameStop, Cohen successfully became chair of the board, and RC Ventures landed two additional board seats. Securing directorships is the “first necessary step for success in an activist campaign,” said Vyacheslav Fos, associate professor of finance at Boston College.
From a stock perspective, his involvement with GameStop has been a win. Since disclosing his stake at the end of August 2020, shares have soared over 1000%. Much of that growth has come from individual investors, driven by the meme stock trading frenzy. As Barron’s reported previously, the company was able to capitalize on the momentum to raise capital, conducting two separate stock sales and improving the company’s financial position. Sales are up 6% for the 12 months starting January 2021, when Cohen brokered the deal that made him chair. As of its most recent quarter, the company had more than $1 billion in cash and short-term investments on its balance sheet, up from $746 million in July 2020.
That said, profitability still eludes the retailer. Since January 2021, GameStop has posted a wider loss than expected for five out of the last eight quarters, according to FactSet. Achieving profitability in the near term is one of the company’s biggest priorities, according to the most recent quarterly filing.
The results of Cohen’s campaign against Bed Bath & Beyond are less sunny. Cohen was again successful in claiming board seats, landing three for RC Ventures within months of disclosing his shares in the company. Then-CEO Tritton was ousted during the same period.
In mid August of 2022, however, Cohen surprised investors by selling all his shares. Cohen made a killing on the move—over $60 million by some estimates. Other shareholders weren’t so lucky; the stock is down 81% since Cohen first announced his stake in the company.
A negative stock reaction is common after an activist pulls back from the campaign, Fos said. “If an activist cannot make the change, it’s probably because the company is in really bad situation,” he added.
Bed Bath is now fighting to stave off bankruptcy. On Tuesday, the company bought itself some more time to turn business around, saying it finished completed a public equity offering that will raise $1 billion over time to pay off some of its debt.
Following Cohen’s exit, both he and Bed Bath’s management have been hit with lawsuits arguing that the move was a so-called “pump and dump” scheme. According to one complaint filed last year, plaintiffs are arguing that Cohen’s campaign was “part of a scheme to manipulate the securities markets for the purpose of artificially inflating the price and trading volume of Bed Bath & Beyond securities.”
Cohen has filed motions to dismiss the claims as meritless. A representative for Bed Bath did not respond to Barron’s requests for comment.
The Bed Bath & Beyond case illustrates how success for an activist investor doesn’t necessarily equate to a good outcome for general shareholders. As Barron’s Jack Hough wrote last week, activists may fuel an initial pop in stock price, but they don’t always succeed at implementing the changes they would like to see in a company, or in turning performance around.
Fos, the Boston College professor, disagrees, saying that academic research, including his own, has shown that activist investor campaigns are positively correlated to both share price appreciation as well as future financial improvements for the company.
While Cohen has amassed a following among retail traders, investors have remained cool on his latest activist campaigns. Market response to reports of his stake in Alibaba were muted, with the shares down close to 9% since mid-January, when it was revealed. Nordstrom shares jumped on news of Cohen’s investment, but have since given back some of those gains.
Rishi Khanna, CEO of StockTwits, a social media platform, says individual investors will be watching Cohen’s Nordstrom campaign carefully. Success with the retailer could go a long way toward back “whatever he may have lost” in terms of influence with followers after pulling out of Bed Bath, said Khanna.
Write to Sabrina Escobar at sabrina.escobar@barrons.com
Credit: marketwatch.com