On the heels of its second-quarterearnings report last week, Nordstrom (NYSE:JWN) got a much-needed boost. The Nordstrom stock price swiftly went from $25 to $29.
But of course, for those who have been long on JWN stock for some time, this was far from enough. The fact is the shares have been a portfolio buzz kill for the past five years. During this period, the return was an average -10% or so. In fact, for the past 12 months, the shares are off over 50%!
Keep in mind that the latest earnings report was still not particularly good either. For the most part, it was better than the terrible Wall Street expectations, at least on the bottom line. The decline in earnings per share was less than the consensus forecast.
And yes, JWN continues to have struggle ginning up growth on the top line. During Q2, revenues dropped 5% on a year-over-year basis to $3.87 billion. This was the third consecutive decline.
The fiscal year guidance also calls for a decline of 2%. Note that the prior guidance was for 0% to -2%.
The Real Problems
So then what now for Nordstrom stock? Could this be a contrarian play? Or should investors be cautious?
Well, there are definitely some positive factors to consider. For example, in the latest quarter, JWN reported much better inventory management (there was a 7% drop on an annual basis), which helped keep costs lower.
It’s also encouraging that the company has remained focused on being disciplined with growth. There has also been innovation with new formats, such as local stores.
Oh, and JWN has a solid digital footprint, which is seamless with the physical stores. About 30% of overall sales come from ecommerce, which is one of the highest among traditional retailers.
And of course, the company has the advantages of strong customer service and unique merchandise– which should provide competitive advantages.
But unfortunately, such factors may still not be enough. With the relentless drive of operators like Amazon.com (NASDAQ:AMZN), there has been a transformation of consumer behavior.
There are also fast-growing startups, like the Stitch Fix (NASDAQ:SFIX) and RealReal (NASDAQ:REAL), that are innovating the market such as with easy access to second-hand goods or the leveraging of AI (Artificial Intelligence) and ML (Machine Learning).
No doubt, it does not help that JWN’s locations are heavily concentrated in malls, which have seen deteriorating traffic. Because of this, it may not matter much if the company has strong inventory or a solid omnichannel strategy.
In the meantime, the leadership structure does not look ideal. It’s essentially a committee of three family members that manage different parts of the business and come to decisions via consensus. In today’s dynamic world, this appears to be a recipe for slow-moving reactions and initiatives.
Bottom Line on Nordstrom Stock
On the face of it, Nordstrom stock is trading at bargain levels. Consider that the forward price-to-earnings ratio is 8.3X. There is also a juicy dividend yield, which is at 5.3%.
What’s more, there could be some near-term catalysts for Nordstrom stock. According to the Wall Street Journal, the Nordstrom family is evaluating the increase in the equity stake from 33% to 50%. This may include a major buyback at a premium to the current stock price.
But this does not solve the core problem with Nordstrom stock: growth. Regardless of its investments and innovations, there has been little impact on the top line.
In other words, the bull moves may prove to be temporary events.
Tom Taulli is the author of the book, Artificial Intelligence Basics: A Non-Technical Introduction. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.