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Nordstrom (JWN) Down 7.6% in 3 Months: Will the Stock Revive?

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Despite the easing of COVID-19 restrictions and reopening of economies, Nordstrom, Inc. (JWN - Free Report) is still not out of the woods and remains well below first-quarter fiscal 2019 levels (which marks the pre-pandemic period). The company’s top and bottom lines in the first quarter of fiscal 2021 improved on a year-over-year basis, reflecting a notable recovery. However, adjusted loss of 64 cents per share compared unfavorably with the previous quarter and the first quarter of 2019. The soft bottom-line performance can be attributed to continued cost pressures, elevated labor and shipping costs, and apparel industry supply constraints.

The top line declined 13% from first-quarter fiscal 2019, with sales for Nordstrom and Nordstrom Rack brands declining 13% each, mainly as in-store sales volumes are yet to match the pre-pandemic levels. Gross margin contracted 260 bps from first-quarter fiscal 2019, attributable to relatively lower sales and merchandise margins, offset by a permanent decline in buying and occupancy costs. Also, SG&A expenses, as a percentage of sales, increased 280 bps from first-quarter fiscal 2019 due to higher COVID-related labor and freight costs.

Consequently, shares of this Zacks Rank #3 (Hold) company have declined as much as 7.6% in the past three months against the industry’s growth of 3.7%.

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Efforts to Counter Hurdles

Nordstrom is not sitting idle and remains focused on its strategies to aid growth. The company remains poised to continue gaining from advanced technology, solid e-commerce and digital networks, and improved supply-chain channels and marketing efforts. Gains from these have contributed to first-quarter fiscal 2021 results, wherein digital sales advanced 23% year over year and 28% from the first quarter of fiscal 2019. Moreover, digital penetration improved 15 percentage points on a two-year basis. The Nordstrom and Nordstrom Rack apps were the key drivers of improved customer engagement. Mobile customers, including app users, constituted about 75% of the total digital traffic and two-thirds of total digital sales in the fiscal first quarter.

Further, broad-based improvement across the Nordstrom and Nordstrom Rack brands, both in stores and online, driven by a recovery in stores sales and strong digital growth, bodes well. Sales for the Nordstrom brand improved 6% sequentially, while Nordstrom Rack sales rose 10% sequentially in first-quarter fiscal 2021. Going ahead, management noted that the sequential top-line growth trends continued in the second quarter of fiscal 2021.

The company anticipates total revenue growth of more than 25% for fiscal 2021, with digital representing 50% of sales. Driven by expectations of an improved gross margin and moderating cost pressures, it expects EBIT margin to be 3% of sales for fiscal 2021. For the first half of fiscal 2021, the company anticipates a nearly breakeven EBIT, contributing 45% to total fiscal 2021 sales.

The company is also progressing well with its market strategy. Nordstrom launched its market strategy in March this year in its first market in Toronto, Canada, with six stores including Nordstrom Sherway Gardens, Nordstrom Yorkdale Shopping Centre, Nordstrom Toronto Eaton Centre, Nordstrom Rack Vaughan Mills, Nordstrom Rack Heartland Town Centre and Nordstrom Rack One Bloor. In first-quarter fiscal 2021, the company expanded the rollout to 10 new markets, including Atlanta, Houston, Detroit and Minneapolis. By the end of first-quarter fiscal 2021, Nordstrom had its market strategy in place in all its 20 top markets, contributing about 75% of its sales. As part of the strategy, it expanded order pickup and ship-to-store facilities to all Nordstrom Rack stores.

Bottom Line

We hope that the recovery in store traffic, a solid online show and robust demand will aid Nordstrom’s top line and position it for better growth in the near term. The Zacks Consensus Estimate for fiscal 2021 earnings is pegged at $1.19 per share, indicating an increase of 1.7% in the past 30 days.

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