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    Nordstrom Inc (JWN)

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    Nordstrom, Inc. (NYSE: JWN) is a leading fashion retailer founded in 1901, specializing in high-quality brand-name and private-label merchandise. The company operates through an integrated network of physical stores and digital platforms, offering apparel, shoes, beauty products, accessories, and home goods. Nordstrom serves customers through its full-price and off-price retail banners, providing personalized services and a seamless shopping experience across channels.

    1. Nordstrom - Operates full-price retail stores, including Nordstrom U.S. stores, Nordstrom.com, and Nordstrom Local, offering a wide range of high-quality merchandise such as apparel, shoes, beauty products, accessories, and home goods.
      • Nordstrom Local - Smaller service-oriented locations providing personal styling, alterations, order pickup, and returns.
    2. Nordstrom Rack - Functions as an off-price retailer with Nordstrom Rack U.S. stores, NordstromRack.com, and Last Chance clearance stores, offering discounted merchandise, including clearance items from Nordstrom and products sourced directly from vendors.
    Initial Price$21.51August 2, 2024
    Final Price$22.56November 2, 2024
    Price Change$1.05
    % Change+4.88%

    What went well

    • Nordstrom Rack is experiencing strong growth, with plans to open 20 to 25 new stores per year, due to ample opportunity in under-penetrated areas.
    • Customer health metrics are positive, showing increased customer count growth and purchase trips growth across both banners, indicating strong consumer engagement.
    • Efforts to invest in best-performing brands are paying off, particularly in women's apparel, leading to double-digit growth in private label sales and increased confidence in their merchandising strategy.

    What went wrong

    • Sales trends slowed down starting in late October, with a decline in trend across all businesses, indicating potential weakening consumer demand heading into the important holiday season.
    • Inventory levels are higher than desired, especially in cold weather categories like boots, outerwear, and sweaters, due to unseasonably warm weather suppressing sales, posing risks of markdowns and margin pressure if demand doesn't pick up.
    • Shrink (inventory loss) is at historically high levels, which the company acknowledges will need to decrease to achieve margin expansion, signaling ongoing challenges in loss prevention impacting profitability.

    Q&A Summary

    1. Q4 Slowdown and Cautious Outlook
      Q: Why has your Q4 outlook become more cautious?
      A: Management observed a slowdown in sales trends starting in the last week of October across all businesses, prompting a more cautious Q4 outlook. They cited factors like calendar shifts with five fewer days between Thanksgiving and Christmas, unseasonably warm weather affecting cold-weather categories, and general election noise as contributors to this slowdown.

    2. EBIT Margin Expansion and Shrink Impact
      Q: What are the key drivers for EBIT margin expansion?
      A: The primary driver for EBIT margin expansion is top-line growth, with the company achieving over 4% year-to-date growth. They also aim to improve supply chain and technology investments to benefit from their omnichannel strategy. Importantly, shrink remains at historically high levels, and reducing it is necessary for substantial margin expansion.

    3. Inventory Levels and Cold Weather Categories
      Q: Why are inventory levels higher than expected?
      A: Inventory levels are slightly higher than desired, mainly due to supporting the Rack business and increased stock in cold-weather categories like boots, outerwear, and sweaters. The unseasonably warm start to winter led to suppressed sales in these areas, resulting in higher inventory quantities, though inventory quality and aging remain healthy.

    4. Gross Margin Improvement and Promotional Environment
      Q: How did gross margin perform, and what's the outlook?
      A: Gross margin improved by 50 basis points, driven by strong regular-price selling, slightly stronger in the Nordstrom banner. For Q4, they expect year-over-year improvement in gross margin and profit. The promotional environment is always significant in Q4, and so far, it has met their expectations.

    5. Rack Growth and New Store Expansion
      Q: What's the plan for Rack store growth?
      A: The company plans to open 20 to 25 new Rack stores each year, seeing ample opportunity due to being under-penetrated in certain areas. New Rack stores are a major source of customer acquisition, bringing in new customers who often shop across both banners.

    6. BOPUS at Rack and Impact
      Q: How will BOPUS at Rack affect sales?
      A: Implementing Buy Online, Pick Up In Store (BOPUS) and store fulfillment at Rack, rolled out to 100 stores, will enhance customer experience by offering more inventory online. This is enabled by investments in RFID technology, leading to expected improvements in sales, margin, and the ability to serve more customers.

    7. SG&A Leverage Expectations
      Q: At what sales growth will you leverage SG&A?
      A: To leverage SG&A expenses, especially considering 2% to 3% inflation, the company needs to achieve comparable sales growth of around 1%. Rack growth will contribute to top-line growth, aiding in reaching this target.

    NamePositionStart DateShort Bio
    Erik B. NordstromChief Executive Officer2020Erik B. Nordstrom has been with Nordstrom for over 40 years, holding various leadership roles. He became CEO in 2020 and has driven investments in blending digital and physical retail experiences.
    Cathy R. SmithChief Financial OfficerMay 29, 2023Cathy R. Smith joined Nordstrom as CFO in May 2023, bringing over 30 years of financial leadership experience, including roles at Bright Health Group, Target Corporation, and Express Scripts.
    Peter E. NordstromPresident & Chief Brand Officer2020Peter E. Nordstrom has been with Nordstrom since 1978. He became President & Chief Brand Officer in 2020 after serving as Co-President and holding other merchandising and store leadership roles.
    Kenneth J. WorzelChief Customer OfficerApril 2022Kenneth J. Worzel joined Nordstrom in 2010 and became Chief Customer Officer in April 2022. He previously served as COO, Chief Digital Officer, and President of Nordstrom.com.
    Jason MorrisChief Technology and Information OfficerMay 2023Jason Morris joined Nordstrom as Chief Technology and Information Officer in May 2023. He previously held senior technology roles at Walmart, including SVP of Enterprise Business Services.
    Fanya ChandlerPresident, Nordstrom StoresSeptember 2023Fanya Chandler has been with Nordstrom since 1991. She became President of Nordstrom Stores in September 2023 after holding various leadership roles, including SVP of the Southwest Region.
    Alexis DePreeChief Supply Chain OfficerJanuary 2020Alexis DePree joined Nordstrom as Chief Supply Chain Officer in January 2020. She previously held leadership roles at Amazon, Target, and Dell Technologies.
    Gemma LionelloPresident, Nordstrom RackSeptember 2023Gemma Lionello has been with Nordstrom since 1988. She became President of Nordstrom Rack in September 2023 after holding leadership roles in regional management and merchandising.
    James F. Nordstrom, Jr.Chief Merchandising OfficerSeptember 2023James F. Nordstrom, Jr. has been with Nordstrom since 1986. He became Chief Merchandising Officer in September 2023 after serving as Chief Stores Officer and holding other merchandising and store leadership roles.
    1. You mentioned that shrink remains at all-time highs impacting margins; what specific measures are you implementing to address shrink, and when do you expect to see meaningful improvements?
    2. Inventory levels are slightly higher than desired due to slower sales in seasonal categories; how confident are you in your ability to manage inventory risk and avoid excessive markdowns, especially with the holiday season underway?
    3. Considering the noticeable sales decline starting at the end of October, can you elaborate on the factors contributing to this slowdown and how you plan to mitigate potential headwinds in the fourth quarter?
    4. With SG&A expenses impacted by higher labor costs and charges related to accelerated technology depreciation, what steps are you taking to control operating expenses, and how should we think about SG&A leverage moving forward?
    5. Credit card revenues declined modestly due to higher losses; how are you addressing the increased credit risk in your portfolio, and what impact do you anticipate this will have on earnings and customer financing options?
    Program DetailsProgram 1
    Approval DateMay 2022
    End Date/DurationNo expiration
    Total Additional ($M)500
    Remaining ($M)438 as of 2024-11-02
    DetailsNo shares repurchased during the nine months ended November 2, 2024

    Q3 2025 Earnings Call

    • Issued Period: Q3 2025
    • Guided Period: FY 2024
    • Guidance:
      1. Revenue and Comparable Sales:
        • Full year revenue: Flat to an increase of 1%, with a 135 basis points headwind from the 53rd week in 2023.
        • Comparable sales growth: 1% to 2% in 2024 versus 52 weeks in 2023.
      2. Profitability:
        • EBIT margin: 3.6% to 4%.
      3. Tax Rate:
        • Effective tax rate: Approximately 27%.
      4. Earnings Per Share (EPS):
        • EPS: $1.75 to $2.05, excluding share repurchases.
      5. SG&A Expenses:
        • Charges: 10 basis points to SG&A expense in Q4 due to accelerated technology depreciation.
      6. Capital Allocation:
        • Quarterly cash dividend: $0.19 per share.

    Q2 2025 Earnings Call

    • Issued Period: Q2 2025
    • Guided Period: FY 2024
    • Guidance:
      1. Revenue:
        • Full year revenue: Decline of 1% to an increase of 1%, with a 135 basis points headwind from the 53rd week in 2023.
      2. Comparable Sales:
        • Comparable sales: Flat to an increase of 2% in 2024 versus 52 weeks in 2023.
      3. EBIT Margin:
        • EBIT margin: 3.6% to 4%.
      4. Effective Tax Rate:
        • Tax rate: Approximately 27%.
      5. Earnings Per Share (EPS):
        • EPS: $1.75 to $2.05, excluding share repurchases.
      6. SG&A Expense:
        • Charges: 10 basis points to SG&A expense in Q3 and Q4 due to accelerated IT asset depreciation.

    Q1 2025 Earnings Call

    • Issued Period: Q1 2025
    • Guided Period: FY 2024
    • Guidance:
      1. Revenue:
        • Full year revenue: Decline of 2% to an increase of 1%, with a 135 basis points headwind from the 53rd week in 2023.
        • Comparable sales: Decrease of 1% to an increase of 2% in 2024 versus 52 weeks in 2023.
      2. Earnings Per Share (EPS):
        • EPS: $1.65 to $2.05, excluding share repurchases.
      3. EBIT Margin:
        • EBIT margin: 3.5% to 4%.
      4. Tax Rate:
        • Tax rate: Approximately 27%.
      5. Capital Expenditures:
        • Capital expenditures: 3% to 4% of net sales.
      6. Credit Revenue:
        • Credit revenue: Approximately 3% of total revenue.
      7. Nordstrom Rack Store Openings:
        • New stores: 22 in 2024.

    Q4 2024 Earnings Call

    • Issued Period: Q4 2024
    • Guided Period: FY 2024
    • Guidance:
      1. Revenue:
        • Full year revenue: Decline of 2% to an increase of 1%, with a 135 basis points headwind from the 53rd week in 2023.
        • Comparable sales: Decrease of 1% to an increase of 2% in 2024 versus 52 weeks in 2023.
      2. EBIT Margin:
        • EBIT margin: 3.5% to 4%.
      3. Effective Tax Rate:
        • Tax rate: 27%.
      4. Earnings Per Share (EPS):
        • EPS: $1.65 to $2.05.
      5. Capital Expenditures:
        • Capital expenditures: 3% to 4% of net sales.
      6. Leverage Ratio:
        • Leverage ratio: Below 2.5x.
      7. Credit Card Revenue:
        • Credit card revenue: Closer to 3% of net sales.
      8. Rack Store Openings:
        • New stores: 22 in 2024.