Nordstrom Inc. (JWN, Financial) was off to a bad start heading into 2017. Shares of the company were down more than 16% at the beginning of June. The stock, however, has turned around since reaching its 52-week low and is down nearly 7% year to date.
Nordstrom reported better-than-expected second-quarter results on Aug.10, topping estimates on the top and bottom lines. For the quarter, the company posted earnings per share of 65 cents, beating estimates by one cent.
Quarterly revenue came in at $3.8 billion, beating the forecast of $3.75 billion and growing 3.5% year over year. Same-store sales grew 1.7%, compared to a forecast of -0.4% for the full line and Rack stores.
Although retail sales have taken a hard hit due to the growing presence of online sales, Nordstrom has displayed decent performance over the past two years. The retailer revealed its anniversary sale this year performed better than recent trends and provided an immense sales lift for the second quarter.
The company identified the opportunity in digital sales earlier than its competitors, and its investments have paid off. Its online sales surged 20% at Nordstrom.com as well as 27% at Nordstromrack.com and HauteLook. The strong results in the digital segment confirm the retailer is able to grow effectively in the changing environment, where online sales play a vital role.
Nordstrom currently operates 116 full-line stores, significantly fewer locations compared to its rivals. Instead of opening new stores, the retailer plans to invest heavily in e-commerce, which will indeed reap fruitful results in the years ahead.
While the retailer’s sales at its full-line stores in the U.S. plunged 4.5%, it was an improvement from a drop of 6.5% a year ago. The company reported solid revenue, but its gross profit was down nearly 25 basis points during the second quarter due to rising supply chain costs, technology investments and higher occupancy outlay related to new stores.
Nordstrom also updated its guidance for the full year. The retailer now expects its net sales to grow over 4%, marginally better than its previous guidance of 3% to 4%. While the company still expects same-store sales to be flat, it has increased the lower end of its guidance for profit.
Summing up
Nordstrom has been performing well compared to most of its rivals. Despite continuously declining retail sales, the company delivered positive comps growth in the prior quarter.Â
While Nordstrom's updated bottom-line forecast is still lower than in previous years, it is not likely its earnings will grow anytime soon. The substantial investments for the future growth will continue hurting margins for at least the next several quarters.
The stock currently trades at a price-earnings (P/E) multiple of 15 times. Although earnings growth has not been exciting for the retailer over the past several years, it appears a turnaround could be well underway, marking a good entry point for long-term investors at the current market price.
Overall, Nordstrom is moving in the right direction by aggressively focusing on online sales instead of opening more physical stores, which could send the stock higher in the future.
Disclosure: No position in the stocks mentioned in this article.
