Nordstrom (JWN) Dips More Than 24% in 3 Months: Can It Revive?

Nordstrom Inc.'s JWN struggle to reach the pre-pandemic levels continues. Although the company's third-quarter fiscal 2021 results improved year over year, it demonstrated adverse comparisons with third-quarter fiscal 2019 (the pre-pandemic level). The pre-pandemic period is a more suitable comparison as elevated COVID-19 impacts of temporary store closures hurt industry-wide results throughout 2020.

Notably, the company's top line declined 1% from the third quarter of fiscal 2019. Sales for the Nordstrom Rack brand reflect a decline of 8% from third-quarter fiscal 2019.

The company has also been witnessing freight and labor expenses for some time now. These factors led third-quarter fiscal 2021 EBIT to decline by $66 million on a two-year basis. SG&A expenses expanded 230 bps year over year to 34% for the fiscal third quarter due to higher labor costs, offset by robust sales growth. The metric also increased 260 bps from third-quarter fiscal 2019 due to higher fulfillment and labor costs, offset by gains from the resetting of cost structures in 2020. SG&A expenses related to fulfillment and labor costs are likely to remain high in the fiscal fourth quarter. It also expects supply-chain disruptions to continue in fiscal 2022.

Due to these factors, shares of this Zacks Rank #3 (Hold) stock lost 24.3% in the past three months compared with the industry's decline of 11.8%.

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Efforts to Counter Hurdles

Management is looking into every nook and cranny for growth. It remains focused on advancing in the technology space by boosting e-commerce and digital networks, and improving its supply-chain channels and marketing efforts.

Although third-quarter fiscal 2021 digital sales fell 12% year over year, the same rose 20% from the third quarter of fiscal 2019. For the fiscal third quarter, digital sales represented 40% of net sales compared with 54% in the year-ago period. The digital business witnessed gains from improved digital traffic across Nordstrom and Nordstrom Rack. The company also completed the integration of Rack.com onto Nordstrom.com, thus, offering a better customer experience.

Alongside solid e-commerce growth, improved merchandise, innovative brand partnerships and sturdy performance at its Nordstrom banner led to strong third-quarter fiscal 2021 results. Total revenues grew 17.7% year over year, marking the fifth straight quarter of sequential top-line growth. Net sales jumped 18% year over year. Owing to higher net sales and lower markdowns, the gross profit margin expanded 230 basis points (bps) year over year to 35% in the reported quarter. The metric also expanded 80 bps from third-quarter fiscal 2019 on the back of reduced buying and occupancy costs as well as improved merchandise margins. This led to adjusted earnings growth of 77.3% to 39 cents per share.

Management continues to anticipate revenue growth of 35% in fiscal 2021. It expects an EBIT margin of 3-3.5% compared with the previously mentioned 3%. For the fiscal fourth quarter, the company envisions significant gross margin improvement on a two-year basis, driven by lower promotional activity and higher regular price sell-through.

Nordstrom is progressing well with its customer-based strategy, which focuses on three strategic factors — leveraging its brand strength, providing excellent services and offering compelling products to its customers. The company has partnered with Fanatics and ASOS in a bid to offer a broader assortment in new and existing categories. The ASOS brand will now be available on nordstrom.com and in two stores. The company intends to expand in-store ASOS offering with a market rollout launch this spring.

Nordstrom remains focused on its long-term strategy, which aims to enhance its digital-first platform, expand the reach of Nordstrom Rack, gain market share, and deliver profitable growth. As part of the strategy, the company continues to scale the enhanced capabilities like the expansion of order pickup and ship-to-store to all Nordstrom Rack stores. It noted that nearly 40% of next-day orders were picked up from Rack stores during the anniversary sale.

Per JWN's closer-to-you strategy, the company 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. It is also on track with integrating Nordstrom Rack assets and offering a wide range of price points offered at Nordstrom Rack. Increased focus on distribution capabilities along with improved connectivity of physical and digital inventory is likely to contribute to Nordstrom Rack sales by $2 billion in the long term.

Management envisions its digital unit to account for 50% of total sales. Rise in new customers, enhanced personalization and expanded product offering are also expected to aid revenue growth, profit margin and generating cash flow in the long term. Consequently, it predicted revenues growth in 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 an annual operating cash flow of more than $1 billion.

Bottom Line

All said, we hope that sturdy demand, solid online show and well-chalked-out endeavors are likely to offset cost woes and help JWN stock get back on track in the near term. Also, a VGM Score of B and a long-term earnings growth rate of 6% raise optimism.

Here's How Other Stocks Fared

We have highlighted three better-ranked stocks in the Retail - Wholesale sector, namely Boot Barn Holdings BOOT, Tractor Supply Company TSCO and Capri Holdings CPRI.

Boot Barn Holdings, the lifestyle retailer of western and work-related footwear, apparel, and accessories, currently sports a Zacks Rank #1 (Strong Buy). Shares of BOOT have rallied 45.2% in the past three months. You can see the complete list of today's Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Boot Barn Holdings' sales and earnings per share (EPS) for the current financial year suggests growth of 54.4% and 183.3%, respectively, from the year-ago period's reported figures. BOOT has a trailing four-quarter earnings surprise of 35.3%, on average.

Tractor Supply, a rural lifestyle retailer in the United States, currently flaunts a Zacks Rank #1. The company has a trailing four-quarter earnings surprise of 22.8%, on average. Shares of TSCO have gained 14.3% in the past three months.

The Zacks Consensus Estimate for Tractor Supply's sales and EPS for the current financial year suggests growth of 19% and 23.9%, respectively, from the year-ago period's reported numbers. TSCO has an expected EPS growth rate of 9.6% for three-five years.

Capri Holdings, which operates membership warehouses, presently carries a Zacks Rank #2 (Buy). The company has a trailing four-quarter earnings surprise of 1024.9%, on average. Shares of CPRI have gained 14.9% in the past three months.

The Zacks Consensus Estimate for Capri Holdings' sales and EPS for the current financial year suggests growth of 12.6% and 1.2%, respectively, from the year-ago period's reported figures. CPRI has an expected EPS growth rate of 56.4% for three-five years.

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