This week is a busy one for retail stocks, as a host of big names in the industry report their quarterly results in the wake of better than expected consumer spending power in the U.S. With wages up 2.7% and the unemployment rate at 20-year lows, many believe that Americans loosened their purse strings and spent more over the past few months. So far, the majority of S&P 500 companies have reported strong second-quarter earnings. On Thursday, we will learn whether upscale department store chain Nordstrom (NYSE:JWN) was able to continue that trend, as it will report its second-quarter results. We will also, of course, see what impact the results will have on JWN stock.
JWN stock has had a choppy year, with the share price trading in the low 50s since January. That’s because, although the firm has been able to shift its strategy and keep up with the rising popularity of online shopping, Nordstrom is still struggling to keep its costs down and maintain the momentum of its flagship stores. When investors examine Nordstrom’s results, they will be keeping a close eye on JWN’s management of its off-price brand. Investors will also be looking for updates on some of the retailer’s digital sales initiatives that have increased its costs over the past few quarters.
What to Expect
In July, Nordstrom said it expected its fiscal 2018 sales to come in between $15.2 billion and $15.4 billion, below analysts’ previous expectations of $15.8 billion. The announcement took JWN stock down significantly, as investors saw the revised guidance as a step in the wrong direction. However, the guidance issued back in July might help mitigate disappointment over a Q2 top line miss. Plus, any upside surprise will most likely be well-received, likely causing JWN stock to rise.
E-Commerce
Of course, Nordstrom’s comps will be under the spotlight this quarter, but investors will really put its e-commerce results under the microscope. Nordstrom has been arguably the most successful department store when it comes to creating an omnichannel strategy, and that success has been positive for JWN stock. Last quarter Nordstrom announced that e-commerce had accounted for 25% of its overall sales, representing a healthy increase from just 8% seven years ago. However, investors will be expecting that figure to continue growing, as e-commerce is clearly the future of retail.
Inventory management has been another strong area for Nordstrom and part of the reason its omnichannel approach has been working so well. The company’s inventory tracking system allows customers to order from anywhere, and the retailer is able to deliver any of its products from any facility in which it holds inventory. That approach has helped keep costs down as JWN builds out its digital offerings and keeps inventory turnover rising.
Management recently sought to enhance its online business by acquiring BevyUp, so investors will be looking for details about how the company plans to integrate that feature into its online shopping offerings. BevyUp connects online shoppers and allows them to communicate using chat and video features. If properly integrated, the product could make Nordstrom’s online shopping experience stand out from that of the competition.
Off-Price Stores
Another aspect of Nordstrom’s earnings that investors will be watching is the company’s continuing efforts to enhance its off-price brand, Nordstrom Rack. Sales at Rack locations have been on the rise recently; last year, the stores’ sales jumped nearly 10%. That’s an important trend, as Nordstrom Rack tends to attract younger shoppers and offers a “treasure-hunt” shopping experience that will likely enable the brand to succeed over the next decade. Such a development would likely be positive for JWN stock. However, it’s possible that the stores have been cannibalizing sales from the company’s flagship, full-price stores, and weighing on the company’s overall sales growth in recent quarters.
Bottom Line for JWN Stock
Nordstrom has been one of the most successful turnaround stories in the department store space. But that doesn’t mean that JWN stock has a free ride. The company is still struggling against several headwinds which have kept investors from being overly optimistic about JWN. The company’s Q2 results will be telling, as the backdrop of a healthy economy and rising consumer spending should help bolster quarterly reports throughout the sector. However, a miss in this environment could signal real trouble for JWN stock.
As of this writing Laura Hoy did not hold a position in any of the aforementioned securities.
