Nordstrom (JWN) shares fall as 2021 promote outlooks disillusioned

A pedestrian and cyclist wear face masks outside a Nordstrom department store store in Santa Monica, California on May 11, 2020.

Frederic J. Brown | AFP | Getty Images

Nordstrom stock fell Thursday as the department store chain delivered disappointing sales prospects for the year, saying it plans to shift more of its business off-price.

Nordstrom expects sales in fiscal year 2021 to increase by more than 25% year-on-year, with around half of sales being generated in the digital business. Last year the department store chain achieved around a third of its online sales.

According to a refinitive survey, the expected growth for 2021 is slightly below the sales increase of 26.6% expected by analysts.

The company also expects earnings before interest and taxes to be positive in fiscal 2021, it said ahead of a virtual meeting with investors on Thursday.

The Nordstrom share was stopped before the press release with a plus of 4.1%. After resuming trading, stocks recently fell more than 5% as investors processed the new forecast.

“Nordstrom had become a favorite among investors to reopen retail,” said Simeon Siegel, an analyst at BMO Capital Markets. The stock was up more than 16% since the start of the year, more than Kohl’s, Best Buy, Gap, and a number of other retailers.

Given that customers are changing their buying habits after the coronavirus pandemic, Nordstrom plans to focus its investments on smaller-scale stores and expand its low-cost rack business and e-commerce to win back old customers and reach new ones.

While the pace of growth is breathtaking compared to previous years, Nordstrom will overtake 2020 when its brick and mortar stores were closed for two quarters in the spring due to Covid restrictions. West coast sales were later hurt as Covid-19 cases in the region spiked well into the fall and winter, prompting state officials to renew restrictions.

Nordstrom will not announce its fourth quarter results until March 2nd. However, the company has reiterated its earlier outlook, calling for sales to drop in the low 20% yoy. Earnings before interest and taxes should also continue to be positive.

Low single-digit sales growth

In the long term, Nordstrom expects sales to grow in the low single-digit range from 2019 onwards, while profits continue to grow faster than sales. In 2019, Nordstrom had net sales of $ 15.1 billion, a decrease of 2.2% year over year.

During the virtual presentation, CEO Erik Nordstrom said the company is aiming for annual sales of $ 17 billion in the medium term.

“We recently made a solid assessment of our addressable market,” he said. “And we see a significant opportunity to expand the customer base we serve.”

With a more affluent customer base, Nordstrom is considered one of the strongest department store chains in the United States. Stores are typically located in higher performing malls and there are fewer of them, which has helped control overhead costs. At the end of 2019, Nordstrom stated that 95% of department stores were in what are known as A-rated malls, while most of the rack locations were in malls outside the mall. The rack business, which competes with companies like TJ Maxx and Ross Stores, has helped Nordstrom reach buyers who are more price conscious but still want designer brands.

“At Nordstrom Rack we have historically focused on trendy fashion enthusiasts looking for high value with a high brand focus … but we have not prioritized price-conscious buyers who are looking for offer and value first,” said Nordstrom. The CEO added that the rack business is on track to add $ 2 billion in additional revenue over the next five years.

Nordstrom’s shares are down about 3% over the past 12 months to a market value of $ 5.9 billion, while Macy’s shares are down a little more than 10%, bringing their value to $ 4.6 billion to have.

Kohl’s is up nearly 9% year over year, giving it the largest market cap of the three companies at $ 7.8 billion. Earlier Thursday, Kohl’s announced that sales are expected to drop 10% in the holiday quarter, but the company announced that sales have been getting stronger since the start of the new year.

In the department store, rivals like JC Penney and Neiman Marcus filed for bankruptcy protection last year. Macy’s and Penney have also closed hundreds of stores, while Nordstrom only closed 16 locations in 2020.

Nordstrom’s previous online investments have paid off and increased performance. Half of the business is done almost digitally, and that is way ahead of the competition. For example, Macy’s said that its 2019 digital sales represented only 26% of total sales. Kohl’s said its digital business accounted for 24% of net sales in 2019.

“We had always thought and talked about that this would happen at some point,” said Anne Bramman, Nordstrom’s chief financial officer, in an interview. “It’s just accelerated with the environment we’re in right now.”

A bigger role for Nordstrom Rack

Nordstrom also envisages a bigger role for Rack in the future. Bramman said the company expects Rack to account for half of its sales in the near future, compared to about a third at the end of the last fiscal year reported.

It’s clear that the company is aiming for a greater presence outside of the mall, with even A-rated malls dropping in recent years.

“We still believe that [Nordstrom] has the potential to gain profitable market share over time as we consider the business to be well positioned relative to other companies, “said Dana Telsey, founder of Telsey Advisory Group, in a statement to clients ahead of the working meeting in an off-price channel that has legs for growth … [and] a profitable digital presence that continues to grow. “

Geevy Thomas, president of Nordstrom Rack, said the rack expects 45% of its future sales to be online thanks to investments in services like roadside collection. In the meantime, the brand will continue to open locations in new markets and invest in key categories like shoes that drive customer traffic.

Another strategy Nordstrom is using to generate sales is to offer customers more choice: Nordstrom plans to increase the items it offers from around 300,000 today to more than 1.5 million.

Bramman said the retailer plans to grow some of its private fashion labels as it continues to “work with new and emerging brands and expand our partnerships with some of our larger brands.”

“We’re running a new game book, but a lot of the groundwork has already been put in place,” said Bramman.

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