International Expansion — JWN Stock
The Nordstrom brothers are likely watching Target’s (TGT) aggressive expansion into Canada with interest. Most experts would agree that the Minneapolis discounter has fumbled its opportunity to capture some of Walmart’s (WMT) business. It has lost nearly one billion dollars since opening its doors last March. However, we’re just now approaching Target’s one-year anniversary in Canada. It’s not how you start that matters; it’s how you finish.
What does this mean for JWN Stock?
Like Target, the long-term prognosis for Nordstrom in Canada is very favorable despite the competition it will face from Saks, a subsidiary of the Hudson’s Bay Company (HBAYF), Canada’s largest department store. Never has Canada’s retail scene experienced such dynamic change. Nordstrom is one of the major beneficiaries.
Several analysts have downgraded JWN stock since it reported Q4 earnings Feb. 20. Earnings were a mixed bag. More worrisome to investors was its 2014 guidance that calls for top-line revenue maxing out at $13.5 billion with earnings per share of $3.90.
While revenue was in line with analyst projections for JWN stock, its EPS at the high end of the range was 11 cents lower than the consensus estimate. Costs related to its Canadian expansion and an ongoing promotional environment are responsible for the lowered projections.
I like JWN stock for two main reasons: First, I think its Canadian expansion will be a hit from the start. These department stores will be wonderful, and no amount of competition is going to change that. Secondly, its e-commerce business now generates 33% of its overall revenue, growing at a quarterly rate of 30% or more. It might cannibalize revenue, but ultimately it will make a lot more money for the company just as Williams-Sonoma (WSM) does with its online business.
In the end, JWN stock wins because Nordstrom provides the best customer experience in-store and online.