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Do Nordstrom's (JWN) Initiatives Place It for Durable Growth?
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Nordstrom Inc. (JWN - Free Report) has been witnessing decelerating demand trends due to reduced consumer spending amid lower income groups, stemming from the tough macroeconomic environment. This has been hurting the company’s top-line performance across both banners. Additionally, the wind-down of the Canada business has been weighing on its performance.
Furthermore, the company’s decision to eliminate store fulfillment for Nordstrom Rack’s digital orders, effective from the third quarter of fiscal 2022, has been hurting sales for the banner.
Driven by these headwinds, Nordstrom expects the total revenues to decline 4-6% year over year in fiscal 2023. 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.
The impacts of the ongoing headwinds are also well reflected in the company’s share price. Shares of the Zacks Rank #3 (Hold) company have lost 25% in the past year against the industry’s growth of 5.6%. Additionally, the stock has lagged the sector and the S&P 500’s growth of 8.2% and 14.5%, respectively.
Image Source: Zacks Investment Research
Is There a Scope for Comeback?
Although muted demand and reduced discretionary spending are looming concerns for Nordstrom, the company is leaving no stone unturned to get back on track. Its efforts to improve the Nordstrom Rack performance, advance inventory productivity and supply-chain optimization bode well.
Nordstrom has been trying to drive efficiency and improve customer experience via faster order fulfillment. It is also on track to reduce inventory and optimize product mix. Increased focus on the Nordstrom Rack banner, driven by strategic brand penetration increases, bodes well. With an improved assortment and more new stores, Nordstrom Rack’s performance is expected to sequentially improve throughout 2023. The Rack banner is also on track to increase productivity throughout its network, decrease transportation costs, reduce delivery times and enhance services via faster delivery.
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 fewer order cancellations, simplified rack operations and improved profitability. Going ahead, it continues focusing on introducing more premium brands at Rack, better assortments and increased brand awareness. Driven by these factors, it expects to optimize the Rack product mix by mid-2023.
Nordstrom has been making efforts to enhance customer experience through faster delivery, especially during its Anniversary sale. In second-quarter fiscal 2023, variable supply-chain costs fell more than 100 basis points for the fourth consecutive quarter, which, in turn, led to overall SG&A deleverage. This supply-chain optimization work began in early 2022 and has delivered significant customer benefits and operational efficiencies. Supply-chain costs per unit in the second quarter fell 5% year over year due to inflation.
Going ahead, JWN continues seeking additional efficiencies in flow and improved productivity through inventory management initiatives.
The company is focused on its long-term strategy based on its market strategy to capitalize on its digital-first platform to better serve customers, gain market share and deliver profitable growth. For this, it is focused on three areas — winning in the most important markets, expanding the reach of Nordstrom Rack and enhancing its digital velocity. It is focused on the closer-to-you strategy, which aims to link stores and services to expedite deliveries, expanding online offerings and adding cheaper merchandise at its Rack off-price stores to improve customers' shopping experiences.
As part of the strategy, Nordstrom earlier issued a long-term outlook. It predicted revenues to grow in the low-single digits on an annual basis, with operating income likely to outpace revenues in the long term. The EBIT margin is expected to be more than 6%, with the annual operating cash flow anticipated to be more than $1 billion. Capital expenditure is likely to be between 3% and 4% of sales.
Additionally, going into fiscal 2023, management is focused on enhancing customer experience, improving the Nordstrom Rack performance, increasing inventory productivity and progressing in its supply-chain optimization initiatives. It is confident about the strength of its brands and its ability to drive profitable growth and deliver long-term value to shareholders.
The company estimates the adjusted EBIT margin to be 3.7-4.2% of sales, which compares favorably with the prior-year 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. Earnings per share, including wind-down-related charges, are expected between 60 cents and $1.00.
Stocks to Consider
Here we have highlighted three better-ranked stocks, namely Abercrombie & Fitch (ANF - Free Report) , American Eagle Outfitters (AEO - Free Report) and Urban Outfitters (URBN - Free Report) .
Abercrombie, a specialty retailer of premium, high-quality casual apparel for men, women, and kids, currently sports a Zacks Rank #1 (Strong Buy). The company has a trailing four-quarter earnings surprise of 724.8%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Abercrombie’s current financial-year sales suggests growth of 10.4%, from the year-ago reported number. The consensus mark for EPS is pegged at $4.36, suggesting significant growth of 1,644% from the year-ago quarter’s EPS of 25 cents.
American Eagle, which operates as a specialty retailer of casual apparel, accessories and footwear for men and women, currently flaunts a Zacks Rank #1. AEO has a trailing four-quarter earnings surprise of 4.7%, on average.
The Zacks Consensus Estimate for American Eagle’s current financial-year sales and earnings indicates growth of 1.5% and 26.8%, respectively, from the year-ago reported numbers.
Urban Outfitters, a lifestyle specialty retailer that offers fashion apparel and accessories, footwear, home décor and gifts products, currently sports a Zacks Rank #1. URBN has a trailing four-quarter earnings surprise of 19.2%, on average.
The Zacks Consensus Estimate for Urban Outfitters’ current financial-year sales and earnings implies growth of 9% and 84.6%, respectively, from the year-ago reported numbers.
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Do Nordstrom's (JWN) Initiatives Place It for Durable Growth?
Nordstrom Inc. (JWN - Free Report) has been witnessing decelerating demand trends due to reduced consumer spending amid lower income groups, stemming from the tough macroeconomic environment. This has been hurting the company’s top-line performance across both banners. Additionally, the wind-down of the Canada business has been weighing on its performance.
Furthermore, the company’s decision to eliminate store fulfillment for Nordstrom Rack’s digital orders, effective from the third quarter of fiscal 2022, has been hurting sales for the banner.
Driven by these headwinds, Nordstrom expects the total revenues to decline 4-6% year over year in fiscal 2023. 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.
The impacts of the ongoing headwinds are also well reflected in the company’s share price. Shares of the Zacks Rank #3 (Hold) company have lost 25% in the past year against the industry’s growth of 5.6%. Additionally, the stock has lagged the sector and the S&P 500’s growth of 8.2% and 14.5%, respectively.
Image Source: Zacks Investment Research
Is There a Scope for Comeback?
Although muted demand and reduced discretionary spending are looming concerns for Nordstrom, the company is leaving no stone unturned to get back on track. Its efforts to improve the Nordstrom Rack performance, advance inventory productivity and supply-chain optimization bode well.
Nordstrom has been trying to drive efficiency and improve customer experience via faster order fulfillment. It is also on track to reduce inventory and optimize product mix. Increased focus on the Nordstrom Rack banner, driven by strategic brand penetration increases, bodes well. With an improved assortment and more new stores, Nordstrom Rack’s performance is expected to sequentially improve throughout 2023. The Rack banner is also on track to increase productivity throughout its network, decrease transportation costs, reduce delivery times and enhance services via faster delivery.
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 fewer order cancellations, simplified rack operations and improved profitability. Going ahead, it continues focusing on introducing more premium brands at Rack, better assortments and increased brand awareness. Driven by these factors, it expects to optimize the Rack product mix by mid-2023.
Nordstrom has been making efforts to enhance customer experience through faster delivery, especially during its Anniversary sale. In second-quarter fiscal 2023, variable supply-chain costs fell more than 100 basis points for the fourth consecutive quarter, which, in turn, led to overall SG&A deleverage. This supply-chain optimization work began in early 2022 and has delivered significant customer benefits and operational efficiencies. Supply-chain costs per unit in the second quarter fell 5% year over year due to inflation.
Going ahead, JWN continues seeking additional efficiencies in flow and improved productivity through inventory management initiatives.
The company is focused on its long-term strategy based on its market strategy to capitalize on its digital-first platform to better serve customers, gain market share and deliver profitable growth. For this, it is focused on three areas — winning in the most important markets, expanding the reach of Nordstrom Rack and enhancing its digital velocity. It is focused on the closer-to-you strategy, which aims to link stores and services to expedite deliveries, expanding online offerings and adding cheaper merchandise at its Rack off-price stores to improve customers' shopping experiences.
As part of the strategy, Nordstrom earlier issued a long-term outlook. It predicted revenues to grow in the low-single digits on an annual basis, with operating income likely to outpace revenues in the long term. The EBIT margin is expected to be more than 6%, with the annual operating cash flow anticipated to be more than $1 billion. Capital expenditure is likely to be between 3% and 4% of sales.
Additionally, going into fiscal 2023, management is focused on enhancing customer experience, improving the Nordstrom Rack performance, increasing inventory productivity and progressing in its supply-chain optimization initiatives. It is confident about the strength of its brands and its ability to drive profitable growth and deliver long-term value to shareholders.
The company estimates the adjusted EBIT margin to be 3.7-4.2% of sales, which compares favorably with the prior-year 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. Earnings per share, including wind-down-related charges, are expected between 60 cents and $1.00.
Stocks to Consider
Here we have highlighted three better-ranked stocks, namely Abercrombie & Fitch (ANF - Free Report) , American Eagle Outfitters (AEO - Free Report) and Urban Outfitters (URBN - Free Report) .
Abercrombie, a specialty retailer of premium, high-quality casual apparel for men, women, and kids, currently sports a Zacks Rank #1 (Strong Buy). The company has a trailing four-quarter earnings surprise of 724.8%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Abercrombie’s current financial-year sales suggests growth of 10.4%, from the year-ago reported number. The consensus mark for EPS is pegged at $4.36, suggesting significant growth of 1,644% from the year-ago quarter’s EPS of 25 cents.
American Eagle, which operates as a specialty retailer of casual apparel, accessories and footwear for men and women, currently flaunts a Zacks Rank #1. AEO has a trailing four-quarter earnings surprise of 4.7%, on average.
The Zacks Consensus Estimate for American Eagle’s current financial-year sales and earnings indicates growth of 1.5% and 26.8%, respectively, from the year-ago reported numbers.
Urban Outfitters, a lifestyle specialty retailer that offers fashion apparel and accessories, footwear, home décor and gifts products, currently sports a Zacks Rank #1. URBN has a trailing four-quarter earnings surprise of 19.2%, on average.
The Zacks Consensus Estimate for Urban Outfitters’ current financial-year sales and earnings implies growth of 9% and 84.6%, respectively, from the year-ago reported numbers.