Nordstrom (JWN, Financial) is an American upscale fashion retailer. Over the past few years, Nordstrom has outperformed its rivals in the department store category. Nordstrom’s off-price Nordstrom Rack stores and its online channel have contributed significantly to this growth, and I expect the company’s strong growth to continue in the coming quarters.
Ecommerce will drive growth
One of the main factors that are permitting Nordstrom to outperform its peers at the moment is the strength in its online channel, following millions of dollars and years of investment in constructing out numerous platforms. Its leading website Nordstrom.com saw sales rise by 20% for the period. Rack and HauteLook, its discount websites did even superior, with sales up a gigantic 51%. Online sales currently account for around 20% of the overall tally, compared to around 13% two years ago, and this number is estimated to rise over the forthcoming years.
On the other hand, this desirable sales growth comes at a cost. For the period, net income was chopped some 8.6% to $128 million, with EPS of $0.66 missing the $0.71 mark. SG&A expenditures were up to 31.2% of sales, signifying an upsurge of 141 basis points y-o-y. However, most of the drop in earnings was due to investments in things like Trunk Club, growing into Canada and technology, which should all endure to fuel sales growth going headlong, and ultimately, also benefit the bottom line.
While full-line stores generate majority of Nordstrom’s sales, the managements increasing focus on ecommerce will lead to long-term profits. The ecommerce market is on the rise and is expected to continue the upward trajectory in the years to come. So, it’s important for Nordstrom to gain online market share.
New strategic credit card relationship
Nordstrom and TD Bank Group (TD, Financial) stated an agreement under which TD will attain Nordstrom's current U.S. Visa (V, Financial) and private label customer credit card portfolio, which at present totals about $2.2 billion in receivables. In addition, the two companies have move into a distinct long-term agreement under which TD will grow into the exclusive U.S. issuer of Nordstrom-branded Visa and private label consumer credit cards to Nordstrom clients.
This transaction allows Nordstrom to keep in mind all aspects of customer-facing activities, supporting with Nordstrom's strategy of enhancing the customer experience while letting for development in capital efficiency.
This deal between the TD Bank and Nordstrom, accomplished through great partnership and collaboration, carry on the success of growing North American credit card business. TD will be functioning with one of the most highly respected retail brands in the world and one with a well-established, national customer base. The company is excited that TD Bank has chosen it as its credit card partner.
Why the growth will continue
As observed in recent years, Nordstrom has beaten its peers in the department store category. The company’s off-price Nordstrom Rack stores and its online channel are the main factors for the company’s growth. Nordstrom is severely investing in technology to improve customers’ shopping experiences and furthermore boost growth in online sales. The company also accepts as true that Canada signifies a $1.0 billion opportunity for the company in the long term. Nordstrom is concentrating on improving its merchandise collection to upsurge its store traffic.
The company trades at 20x trailing earnings, and analysts expect its earnings to grow at a rate of 7.3% for the next five years. The company also has a dividend yield of 1.9%. Given the risk/reward ratio, I am firmly bullish on the stock.
