Nordstrom (NYSE: JWN) has been re-evaluating its retail strategy and lining up some impressive partnerships. The JWN stock price has fallen 30% in the past year and endured ongoing volatility in 2022, so what’s its near-term and long-term outlook?
What is Nordstrom?
Nordstrom (JWN stock) is a luxury clothing manufacturer and retailer. Its retail segment comprises a selection of high-quality, brand-name, and private label merchandise, including apparel, shoes, cosmetics, and accessories for women, men, young adults, and children.
The company operates Nordstrom and its off-price department store Nordstrom Rack. The primary offering of Nordstrom sells high-end apparel, while Nordstrom Rack offers cut-price inventory.
Nordstrom’s physical stores include Nordstrom stores, Rack stores, and Nordstrom Locals.
The company was founded by John W. Nordstrom, as a shoe store, in 1901 and is headquartered in Seattle, WA. Nordstrom Rack was founded in 1973.
The company is building on its heritage by aiming to provide convenience and authentic connections to its customers. Latest innovations include its digital-first platform, which serves customers when, where and how they want to shop – in-store or digitally through its Nordstrom and Rack apps and websites, including Amazon.
JWN Stock Q1 Financial Results
JWN reported its Q1 earnings in June for the quarterly period ended April 30, 2022. Earnings per share (EPS) of -$0.06 missed FactSet analyst consensus estimates of -$0.05. And company revenues of $3.57bn beat FactSet analyst sales consensus of $3.29bn by 8.5%.
Key Earnings Highlights:
Total Sales: $3.57bn (up 19% Y/Y)
Net Sales: $3.46bn
Adjusted EPS: -$0.06
Share Buybacks: None
Free Cash Flow: $107m
Nordstrom banner sales increased 23% Y/Y and exceeded pre-pandemic levels
Nordstrom banner gross merchandise value (GMV) is up 25% Y/Y
As Nordstrom saw a return to occasions and customers updating their wardrobes, it experienced broad-based growth across core categories and geographies. With customer traffic and activity returning in city centers, Nordstrom urban store sales collectively rebounded and reached pre-pandemic levels.
Furthermore, in Q1, the Nordstrom Manhattan flagship store had the highest Y/Y sales growth among its stores.
For the Nordstrom banner, the southern US continued to outperform the northern US compared to pre-pandemic levels, but the spread tightened.
Erik Nordstrom, chief executive officer of Nordstrom, Inc., said:
Our focus on serving the customer through our interconnected model with Nordstrom and Nordstrom Rack, a scaled digital platform and a strong store fleet positioned us to capitalize on demand from customers who shopped for long-awaited occasions and refreshed their closets,
In the first quarter, we drove strong topline growth with broad-based improvement across core categories and geographies. Importantly, we made progress on our strategic initiatives and continue to focus on increasing profitability on the path to achieving our financial targets.
Outlook for Full-Year Fiscal 2022
Following Q1 performance, the company updated its FY outlook.
Revenue growth, including retail sales and credit card revenues: 6% to 8% Y/Y
EBIT margin: 5.8% to 6.2% of sales
Adjusted EBIT margin: 5.6% to 6% of sales
Income tax rate: 27%
EPS: $3.38 to $3.68
Adjusted EPS of $3.20 to $3.50
The board of directors authorized a new $500m share repurchase program on May 18, 2022.
How Does Nordstrom Make Money?
Nordstrom makes money from selling clothes, shoes, and accessories. It also brings in revenues from credit card fees and financing.
In July 2021, Nordstrom acquired a minority interest in the Topshop, Topman, Miss Selfridge and HIIT brands through a strategic partnership with ASOS.com Ltd.
JWN Stock Financials
JWN stock has a price-to-earnings ratio (P/E) of 10.1, compared to the industry average of 0.4. Its price-to-sales value (P/S) is 0.2, above the industry average of 0.3. JWN stock offers shareholders a 3.3% dividend yield.
Over the past year, Nordstrom, Inc. (JWN) has traded between $18.65 and $38.48.
Year-to-date, the Nordstrom, Inc. (JWN) stock is down by -5.3%, while the S&P 500 is down -15.1% over the same period.
JWN Growth Potential
JWN is focused on sustainability and boosting growth through strategic partnerships. It wants to expand its efforts to connect physical and digital assets to improve the overall customer experience.
The company’s key core areas of recent success are women's apparel, men's apparel, shoes, and designer.
The designer segment has remained consistently strong for several years, which is very encouraging.
Looking ahead, shareholders want to see the company improving Nordstrom Rack performance, optimizing supply chain and inventory flow, increasing profitability, and making strides in its most important markets.
The company has recently announced the opening of two new Nordstrom Rack stores in Chattanooga, Tennessee, and Wichita, Kansas.
Nordstrom is embracing AI and data to manage the lifecycle of its products more closely. This includes using AI to inform decisions around when to promote, how deep to promote, and to look at factors such as product profitability, seasonality, location, price elasticity and in-stock levels.
This is a way to continue to optimize profitability.
JWN Stock Risks
Supply chain issues prevail, and balancing inventory can be tricky. However, the company is navigating this and keeping a close eye on its processes.
Inflation is affecting company expenses, including wages and supply chain price hikes.
Should You Invest in Nordstrom?
Nordstrom is a popular clothing outlet attracting a loyal customer base. The company has not seen a behavioral change in consumer demand thus far and remains confident in its future.
The streamlining and strategic partnerships the company is building should go a long way to cementing a bright future for the business. Nevertheless, a recession could put a spanner in the works.
FactSet analysts have a consensus Hold rating on JWN stock with a share price target of $23.31.
Simeon A. Siegel at BMO Capital Markets has a Hold rating on the stock with a $25 price target, which he recently downgraded from $28. And analyst Omar Saad of Evercore ISI agrees as he has a Hold rating on JWN stock with a target share price of $25.
Nordstrom’s 3.3% dividend yield is an attractive bonus to potential shareholders, and its long legacy gives it credibility.
Its historical positioning may give you the impression Nordstrom would be an unlikely takeover target, but the company was subject to a takeover rumor in May. And that wasn't the first time. In 2017, rumors circulated that Amazon (NASDAQ: AMZN) or Walmart (NYSE: WMT) could be interested in acquiring the luxury department store business.
Whether you buy shares in Nordstrom depends on your long-term outlook for its success in the current economic environment.
