Nordstrom stock has been rallying, gaining 167% since bottoming in late September.
Courtesy of NordstromDepartment stores are the dinosaurs of retail—and there can be little doubt that they face extinction. The big stores were in decline long before Covid-19 arrived on the scene, and the pandemic has accelerated their skid toward demise.
Department-store sales have been shrinking—they fell 23% to $9 billion in November from $11.1 billion a year earlier—and they don’t look like they’ll stop sliding anytime soon. Already, old names like Lord & Taylor have filed for bankruptcy and disappeared.
But just as some dinosaurs shrank to survive—a success story producing modern birds—some department store companies might successfully evolve. Nordstrom (ticker: JWN), for instance, aided by reduced competition and its investments in online capabilities, looks not only like a survivor, but possibly a long-term winner. While its stock has more than doubled off its low, it’s still some 40% below its February high. Don’t be surprised if Nordstrom closes that gap.
Nordstrom stock has been rallying, gaining 167% since bottoming at $11.79 on Sept. 29, reflecting optimism that its sales will rebound as Covid-19 vaccines take hold. The near term, however, is still ugly for the company. While overall holiday spending appears to have climbed, it’s hard to gauge just yet how well Nordstrom’s business performed, given the most recent Covid surge and restrictions. Early signs point to slower online growth than peers’, though off a larger base.
Most of those problems can be blamed on the pandemic.
Foot traffic at Nordstrom had been steadily recovering until the resurgence in November, according to Placer.ai, with the Saturday following Thanksgiving the best day for Nordstrom and Nordstrom Rack since the start of the pandemic.
But even those who worry that Nordstrom stock has outrun its fundamentals see things they like in the company. Gordon Haskett analyst Chuck Grom warned investors to “stay disciplined” on department store stocks, including Nordstrom, after the recent rally. Still, he singled out Nordstrom for praise, compared to competitors such as Macy’s (M) and Kohl’s (KSS).
Nordstrom has far fewer traditional stores than its competitors, has permanently cut costs by $300 million or so during the pandemic, and should benefit from pent-up demand from wealthier shoppers. “Favorably, we do think that Nordstrom is very well positioned on a number of fronts for when sales begin to recover,” Grom writes, even as he maintains his Neutral rating on the stock.
Current consensus estimates call for Nordstrom to return to profitability and sales growth in fiscal 2022; Nordstrom’s fiscal years end in January. Although analysts expect the company to lose $3.73 a share this year on sales that are down nearly $5 billion from 2019’s, the picture brightens beyond that: The average analyst estimate calls for Nordstrom’s earnings- to rebound to $1.52 a share in 2022, on a more than 27% increase in revenue, to $13.52 billion.
Progress in other areas could tide investors over as they wait for sales to recover. In recent years, Nordstrom has been pouring money into its online business, which has given it something other department stores lack: a website and app that are user-friendly. Shoppers can peruse items from multiple angles, watch videos, and check out fashion pairings created by associates. With a lot of capital spending done, Nordstrom could see a boost to margins, especially relative to its competitors’.
“Nordstrom has already done most of the difficult and costly work of repositioning the company for the digital era,” says Evercore ISI analyst Omar Saad.
The company also has been getting more efficient as it closes more stores—and analysts estimate that the total count will fall from 380 to 308 next year. Nordstrom’s net sales per square foot have been climbing steadily in recent years, to $509 in 2019, up from $492 the year before and less than $400 in 2012.
And Nordstrom isn’t just shrinking its store count—it’s shrinking the stores themselves. Its smaller-format locations feature distinct, curated merchandise, and provide in-person perks like free tailoring that online-only rivals can’t, says KeyBanc Capital Markets analyst Edward Yruma. “There are a lot of interesting services they can deliver in a small-box format,” he says. “And with a lot of traditional high-end department stores struggling, there’s an opportunity for it to become the de facto premium luxury department store over time.”
Nordstrom stock isn’t exactly cheap; it goes for 28 times 2021 estimates of $1.08 a share, although that’s below Dillard’s (DDS) 39 times, and Macy’s 38. Yet the company is trading at just seven times its pre-Covid 2019 earnings of $3.60 a share, which means there is a lot of room to make up. Nordstrom won’t catch up overnight, but even small bouts of outperformance will make the stock look cheaper.
And if sales continue to recover, Nordstrom stock should be able to return to its February high of $43, about 36% above its $31.53 close Thursday.“Nordstrom will continue to execute,” says Chris Quigley, a senior research analyst at wealth management firm Kovitz, which bought the shares in July. “We don’t think the reopening bump is over.”
In fact, it might just be getting started.
rite to Teresa Rivas at teresa.rivas@barrons.com
"still" - Google News
December 31, 2020 at 07:00PM
https://ift.tt/3n4z40q
Nordstrom Looks Like a Department Store Survivor. Its Stock Still Has Room to Run. - Barron's
"still" - Google News
https://ift.tt/35pEmfO
https://ift.tt/2YsogAP
Bagikan Berita Ini
0 Response to "Nordstrom Looks Like a Department Store Survivor. Its Stock Still Has Room to Run. - Barron's"
Post a Comment