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Can Growth Endeavors Aid Nordstrom (JWN) Amid Demand Concerns?
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Nordstrom Inc. (JWN - Free Report) has been gaining from the continued progress in its key initiatives, improved trends at Nordstrom Rack and supply-chain efficiencies. This led to robust margins in first-quarter fiscal 2023, which, in turn, boosted the bottom-line performance.
Notably, the gross profit margin expanded 110 bps year over year to 33.8% for the said quarter, mainly driven by the company’s focus on enhancing inventory productivity. Adjusted earnings before interest and taxes (EBIT) of $50 million rose 56.3% year over year, while the adjusted EBIT margin expanded 70 bps in the fiscal first quarter to 1.6%. Consequently, adjusted earnings were 7 cents per share against the year-ago quarter’s loss of 6 cents.
Going into fiscal 2023, management remains focused on enhancing customer experience, improving the Nordstrom Rack performance, increasing inventory productivity and progressing in its supply-chain optimization initiatives. The company is confident about the strength of its brands, and its ability to drive profitable growth and deliver long-term value to shareholders.
The adjusted EBIT margin is likely to be 3.7-4.2% of sales, which compares favorably with the prior year’s reported figure of 3.3%. Adjusted earnings are envisioned to be $1.80-$2.20 per share, excluding the charges related to the Canada business wind-down. This view is also in sync with our estimate of $1.80. Earnings per share, including wind-down-related charges, are expected between 60 cents and $1.
Other Growth Efforts
Nordstrom has been making efforts to drive efficiency and improve customer experience via faster order fulfillment. It is also on track to reduce inventory and optimize its product mix. Also, increased focus on Nordstrom Rack bodes well.
The company witnessed an improvement in the Nordstrom Rack banner, driven by strategic brand penetration increases. The brand opened two stores in the fiscal first quarter as part of its efforts to expand its reach. The two stores that it opened last year have been performing well. It recently opened six stores and plans to open 13 stores later this year. Going ahead, it intends to roll out in more markets.
With an improved assortment and more new stores, Nordstrom Rack’s performance is expected to sequentially improve throughout 2023. The Rack banner also remains on track to increase productivity throughout its network, lower transportation costs, and reduce delivery times and enhance services via faster delivery.
Earlier, Nordstrom Rack reduced store-based order fulfillment and raised the minimum order amount for free ship-to-store delivery on rack.com. These actions led to lesser order cancellations, simplified rack operations and improved profitability. It continues to focus on introducing more premium brands at Rack, better assortment and increased brand awareness. Driven by these factors, it expects to optimize the Rack product mix by mid-2023.
The company’s long-term strategy, which builds on its market strategy to capitalize on its digital-first platform to better serve customers, gain market share and deliver profitable growth, bodes well. It has also been focused on the closer-to-you strategy, which aims to link stores and services to expedite deliveries, expand online offerings, and add cheaper merchandise at its Rack off-price stores to improve customers' shopping experiences.
Image Source: Zacks Investment Research
Driven by these factors, shares of this Zacks Rank #3 (Hold) company have gained 29.1% in the past three months against the industry’s decline of 1.8%.
Headwinds to Overcome
Despite such upsides, Nordstrom is not free from struggles. The company has been witnessing muted customer demand from the ongoing macroeconomic environment, which dented the top-line performance in the fiscal first quarter.
Revenues of $3,181 million declined 11.6% year over year due to a 175-basis-point (bps) adverse impact of the wind-down of Canada operations and an 11.9% decline in gross merchandise value (GMV). Net sales fell 11.6% year over year to $3,064 million.
In the first quarter of fiscal 2023, net sales for the Nordstrom banner decreased 11.4% from the year-ago quarter to $2,027 million. GMV declined 11.8% year over year for the Nordstrom banner in the fiscal first quarter. Sales at the Nordstrom Rack banner declined 11.9% year over year to $1,037 million. The elimination of store fulfillment for Nordstrom Rack digital orders hurt fiscal first-quarter Rack banner net sales by 600 bps.
Going into fiscal 2023, management expects total revenues to decline 4-6% year over year, in line with our estimate of a 5% decline. Revenues are expected to include a 250-bps impact of the closing of the Canada operations and a nearly 130-bps gain from the 53rd week.
Conclusion
Although inflation-led dismal demand is concerning, Nordstrom seems well-placed to drive further growth on the back of an improved Rack performance, supply-chain efficiencies and its long-term strategy. Topping it, a VGM Score of A and a long-term earnings growth rate of 3.6% reflect its inherent strength.
The Zacks Consensus Estimate for ANF’s 2024 sales and EPS indicates a rise of 3.4% and 732%, respectively, from the year-ago period’s levels. The company has a trailing four-quarter earnings surprise of 480.6%, on average.
Urban Outfitters, which engages in the retail and wholesale of general consumer products, currently sports a Zacks Rank #1. The expected EPS growth rate for three to five years is 18%.
The Zacks Consensus Estimate for Urban Outfitters’ current fiscal-year earnings suggests growth of 57.1% from the year-ago reported number. URBN has a trailing four-quarter earnings surprise of 12.2%, on average.
Walmart, which operates a chain of hypermarkets, discount department stores and grocery stores, currently carries a Zacks Rank #2 (Buy). The expected EPS growth rate for three to five years is 5.5%.
The Zacks Consensus Estimate for Walmart’s current financial-year sales suggests growth of 4.2% from the year-ago period. WMT has a trailing four-quarter earnings surprise of 12%, on average.
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Can Growth Endeavors Aid Nordstrom (JWN) Amid Demand Concerns?
Nordstrom Inc. (JWN - Free Report) has been gaining from the continued progress in its key initiatives, improved trends at Nordstrom Rack and supply-chain efficiencies. This led to robust margins in first-quarter fiscal 2023, which, in turn, boosted the bottom-line performance.
Notably, the gross profit margin expanded 110 bps year over year to 33.8% for the said quarter, mainly driven by the company’s focus on enhancing inventory productivity. Adjusted earnings before interest and taxes (EBIT) of $50 million rose 56.3% year over year, while the adjusted EBIT margin expanded 70 bps in the fiscal first quarter to 1.6%. Consequently, adjusted earnings were 7 cents per share against the year-ago quarter’s loss of 6 cents.
Going into fiscal 2023, management remains focused on enhancing customer experience, improving the Nordstrom Rack performance, increasing inventory productivity and progressing in its supply-chain optimization initiatives. The company is confident about the strength of its brands, and its ability to drive profitable growth and deliver long-term value to shareholders.
The adjusted EBIT margin is likely to be 3.7-4.2% of sales, which compares favorably with the prior year’s reported figure of 3.3%. Adjusted earnings are envisioned to be $1.80-$2.20 per share, excluding the charges related to the Canada business wind-down. This view is also in sync with our estimate of $1.80. Earnings per share, including wind-down-related charges, are expected between 60 cents and $1.
Other Growth Efforts
Nordstrom has been making efforts to drive efficiency and improve customer experience via faster order fulfillment. It is also on track to reduce inventory and optimize its product mix. Also, increased focus on Nordstrom Rack bodes well.
The company witnessed an improvement in the Nordstrom Rack banner, driven by strategic brand penetration increases. The brand opened two stores in the fiscal first quarter as part of its efforts to expand its reach. The two stores that it opened last year have been performing well. It recently opened six stores and plans to open 13 stores later this year. Going ahead, it intends to roll out in more markets.
With an improved assortment and more new stores, Nordstrom Rack’s performance is expected to sequentially improve throughout 2023. The Rack banner also remains on track to increase productivity throughout its network, lower transportation costs, and reduce delivery times and enhance services via faster delivery.
Earlier, Nordstrom Rack reduced store-based order fulfillment and raised the minimum order amount for free ship-to-store delivery on rack.com. These actions led to lesser order cancellations, simplified rack operations and improved profitability. It continues to focus on introducing more premium brands at Rack, better assortment and increased brand awareness. Driven by these factors, it expects to optimize the Rack product mix by mid-2023.
The company’s long-term strategy, which builds on its market strategy to capitalize on its digital-first platform to better serve customers, gain market share and deliver profitable growth, bodes well. It has also been focused on the closer-to-you strategy, which aims to link stores and services to expedite deliveries, expand online offerings, and add cheaper merchandise at its Rack off-price stores to improve customers' shopping experiences.
Image Source: Zacks Investment Research
Driven by these factors, shares of this Zacks Rank #3 (Hold) company have gained 29.1% in the past three months against the industry’s decline of 1.8%.
Headwinds to Overcome
Despite such upsides, Nordstrom is not free from struggles. The company has been witnessing muted customer demand from the ongoing macroeconomic environment, which dented the top-line performance in the fiscal first quarter.
Revenues of $3,181 million declined 11.6% year over year due to a 175-basis-point (bps) adverse impact of the wind-down of Canada operations and an 11.9% decline in gross merchandise value (GMV). Net sales fell 11.6% year over year to $3,064 million.
In the first quarter of fiscal 2023, net sales for the Nordstrom banner decreased 11.4% from the year-ago quarter to $2,027 million. GMV declined 11.8% year over year for the Nordstrom banner in the fiscal first quarter. Sales at the Nordstrom Rack banner declined 11.9% year over year to $1,037 million. The elimination of store fulfillment for Nordstrom Rack digital orders hurt fiscal first-quarter Rack banner net sales by 600 bps.
Going into fiscal 2023, management expects total revenues to decline 4-6% year over year, in line with our estimate of a 5% decline. Revenues are expected to include a 250-bps impact of the closing of the Canada operations and a nearly 130-bps gain from the 53rd week.
Conclusion
Although inflation-led dismal demand is concerning, Nordstrom seems well-placed to drive further growth on the back of an improved Rack performance, supply-chain efficiencies and its long-term strategy. Topping it, a VGM Score of A and a long-term earnings growth rate of 3.6% reflect its inherent strength.
Stocks to Consider
Some better-ranked stocks are Abercrombie & Fitch (ANF - Free Report) , Walmart (WMT - Free Report) and Urban Outfitters (URBN - Free Report) .
Abercrombie & Fitch, a specialty retailer of premium, high-quality casual apparel for men, women, and kids, carries a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for ANF’s 2024 sales and EPS indicates a rise of 3.4% and 732%, respectively, from the year-ago period’s levels. The company has a trailing four-quarter earnings surprise of 480.6%, on average.
Urban Outfitters, which engages in the retail and wholesale of general consumer products, currently sports a Zacks Rank #1. The expected EPS growth rate for three to five years is 18%.
The Zacks Consensus Estimate for Urban Outfitters’ current fiscal-year earnings suggests growth of 57.1% from the year-ago reported number. URBN has a trailing four-quarter earnings surprise of 12.2%, on average.
Walmart, which operates a chain of hypermarkets, discount department stores and grocery stores, currently carries a Zacks Rank #2 (Buy). The expected EPS growth rate for three to five years is 5.5%.
The Zacks Consensus Estimate for Walmart’s current financial-year sales suggests growth of 4.2% from the year-ago period. WMT has a trailing four-quarter earnings surprise of 12%, on average.