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5 Reasons Nordstrom Inc Shareholders Should be Optimistic About the Future
Rough Third Quarter Nordstrom (NYSE: JWN) reported third quarter earnings on November 12, 2015: Sales increase of 6.6% Comparable store sales up 0.9% Net Income of $0.43 per share Includes $0.17 per share of one-time expenses related to sale of credit card portfolio Represents -20% drop from same quarter last year
Rough Third Quarter Shares in Nordstrom and its peers quickly sold off in the face of lackluster sales results: Peer Macy’s (NYSE: M) shares dropped following disappointing same store sales results of -3.9% on November 11, 2015 Despite strong comparable results, J.C. Penney was dragged down with the sector
Rough Third Quarter Despite these poor quarterly results, Nordstrom has a bright future. Here’s why.
#1: Investing in a connected world Nordstrom is fully aware that the retail landscape has changed drastically over the last 20 years Investing in a mobile purchase-and-pickup applications Invested in 3 enormous fulfillment warehouses This has already born fruit: Online sales were 8% of revenues in FY 2010 Projected to be 25% of revenues in FY 2020 Goal is to provide the “richness of stores with convenience of online”
#2: Expanding Customer Base Nordstrom has been successfully expanding beyond traditional department stores: Nordstrom Rack, JWN’s off-price chain initiative, continues to exceed expectations: Has grown from 86 locations in FY 2010 to over 194 today Expected to grow to over 300 locations by FY 2020 Purchased personalized clothing online retailer “Trunk Club” Integrating with rest of Nordstrom’s offerings
#3: Canadian Expansion Nordstrom currently has plans to break into Canadian market in a big way $1 billion estimated sales potential Calgar, Ottawa, and Vancouver flagship stores already open 3 stores planned for Toronto in the next year Early results are extremely positive Stores already open in Canadian market experienced record-setting openings for any new store opening
#4: Supply chain, supply chain, supply chain Nordstrom building up strong fulfillment capabilities for online purchases Currently has 3 enormous facilities across U.S.: Cedar Rapids, IA for full-price order fulfillment Elizabethtown, PA for full-price order fulfillment San Bernadino, CA for off-price order fulfillment Offering free shipping and returns in order to engender customer use and loyalty
#4: Continuing a history of innovation Source: Nordstrom Inc. Investor Presentation December 7, 2015
#5: A history of outperformance One quarter does not a company make Nordstrom has a history of strong operating performance 5 Year Average Return on Equity of 35.02% 5 Year Average Annual Sales Growth of 7.08% 5 Year Average Earnings Per Share Growth of 6.24% Nordstrom projected to continue to grow at a decent clip through end of the decade FY 2020 EPS Estimate of $4.96 Implies annualized earnings per share growth of 7.8% through end of the decade
Foolish Final Thoughts Disillusioned Nordstrom shareholders need not fear Long term picture is solid Nordstrom continues to invest in the future while still operating an exceptional retail operation Given current P/E of 13.4 and forward growth profile the sky is definitely not falling