Nordstrom (JWN, Financial), a fashion specialty retailer, has been executing well on its plan of investing for growth as evident from top-line growth. Its strategy of serving customers on their terms and delivering the high level of service they expect is also a reason behind the success and will go a long way in helping the company in achieving the sales target of $20 billion by 2020.
The company posted first-quarter fiscal 2015 results last week and it was a case of mixed-bag.
Recap of first quarter
Top-line momentum continued in the reported quarter with sales growth of 10% year-over-year with comps increase of 4.4% year over year. The comps growth reflects that the strategy of improving the overall customer experience is working well and the retailer is connecting well with its target customers. On the back of healthy comps growth, new store openings and acquisition of Trunk Club, total revenues came in at $3,215 million, easily surpassing consensus estimates of $3,154 million.
However, the company disappointed on earnings as it missed consensus estimates of $0.71 per share. Net earnings declined 8.3% year-over-year and came in at $0.66 per share missing consensus estimates of $0.71 per share. But, bottom-line was impacted due to acquisition expenses related to Trunk Club and company’s move to expand footprint in the Canadian market. Investments for long-term growth will weigh in on short-term earnings, so I am not reading too much into earnings miss, as long as comps are growing.
During the first quarter, the retailer generated $208 million in cash from operations and exited the quarter with cash and cash equivalents of $769 million.
Expanding into Canada
Nordstrom has ambitious expansion plans in Canada, which over long-term represents an opportunity of around $1 billion in sales. In March, the retailer opened second store in Canada in Ottawa, Ontario. This fall this year, the company will open flagship store in Vancouver, which is expected to be one of the largest volume stores. This will also bolster capabilities leading to upcoming stores in Toronto and Manhattan.
In addition to six full line stores in Canada, the company is also planning to open Nordstrom Rack in the fall of 2017.
Expanding the store count
During the reported quarter, the company opened 2 full-line stores and 10 new Rack stores, taking the count to total store count to 303 versus 270 in the year-ago quarter. Going forward, the company plans to open five full-line stores and 27 Nordstrom Rack stores in fiscal 2015. Out of the five full-line stores, two will be in Canada.
Focusing on customer experience
Besides investing in growth of stores, Nordstrom is also keeping customer choices and better shopping experience in focus. For example, in 2014 the company saw tangible results from enhancements in mobile shopping to make it more shoppers friendly. The company has added location-based features which is driving in-store sales and enabling a more seamless experience.
This fall, the will be providing customers with faster delivery enabled by its third fulfillment center located in Pennsylvania. Additionally, in the second half of the year, the retailer will roll out expanded multi-tenant rewards program across the board. In addition, the company is responding to customer's desire for fresh, relevant brands, with the introduction of Charlotte Tilbury, Madewell, Brandy Melville, and several others.
The company’s online business grew 20% year over year at nordstrom.com, and 51% year over year at nordstromrack.com on the back of bolstered merchandise offerings.
Looking forward
Based on its performance and execution of plans for growth in the future, the company reiterated its full year guidance for fiscal 2015. Net sales are expected to grow in the band of 7% to 9% and comps are expected to move up in the range of 2% to 4% year over year.
Earnings are expected to be in the rage of $3.65–$3.80 per share, implying a decline of 2% to growth of 2% year over year.
Final words
Nordstrom is executing well on its investment plans for driving growth. In addition, the company is connecting well with the target customers as reflected in comps growth. No doubt, investments will hurt earnings in the short-term, but that’s the price one pays for driving top-line consistently by expanding footprint. With a forward P/E of around 17.8 versus trailing P/E of 20.11 we can see earnings growth.
