When this pandemic is over, I’m going to eat in a restaurant. I’m going to wear nice clothes and laugh with friends. Forget about Disney World. I’m going to Nordstrom (NYSE:JWN). JWN stock remains 10.2% below where it was this time last year while the S&P 500 Index is up 17.7%.
The pandemic has been very, very bad for this Seattle-based retailer, whose mall anchors specialize in personal service. Sales for the year ending in January are expected to be down 30% from a year ago. Losses could come in at as much as $4 a share.
Is there any reason why you should give this stock a chance? Why, yes.
What JWN Stock Lost Early On
While the pandemic killed off many retailers, it didn’t kill Nordstrom. Rivals like Brooks Brothers, Barney’s, and Neiman Marcus have gone bankrupt. Nordstrom carries on.
The company now expects sales will grow 25% in fiscal 2022, with profits growing even faster than sales.
As stores re-open, people are caring more about how they look, says CFO Annie Bramman. The company hopes to grow sales at its Nordstrom Rack outlet stores to $2 billion.
Evercore ISI says Nordstrom investments in technology will make it the “Amazon (NASDAQ:AMZN) of fashion.” Customers will be able to choose from among 1.5 million items on its website, using a “partner ecosystem” that limits the store’s exposure. That has a very “sold by Amazon” feel to it.
Nordstrom has long been known for its personal shopping services, with commissioned salespeople offering custom looks to customers. Now nearly one-third of those appointments are virtual, and subscription services like Trunk Club let customers try before buying.
Analysts expect Nordstrom to have had sales of $3.58 billion during the Christmas season. A profit is expected when it reports March 2. During the pandemic’s worst two quarters, the company lost nearly $5 a share as stores were closed and customers stayed home.
The Pandemic Hangover
Nordstrom’s survival and upbeat outlook have yet to boost the stock price. Shares fell after its Jan. 26 “Investor Day,” where it said it will segment Nordstrom Rack assortments based on local demographics, predicting operating margins of 6% and net income of $4-5 a share.
Instead, predictions that post-pandemic sales will grow at single-digit rates have share prices down more than 10% in February, despite retail analysts praising the strategy. It was the realistic forecast that sank the shares.
What the bears are seeing is a “new normal” where people continue to work at home, taking out a huge chunk of high-end retail sales. We may not wear pajamas in our home offices, but we’re not wearing heels or tailored suits, either.
The last time things looked this bleak, a few years ago, the Nordstrom family stepped in with an offer to buy out public shareholders. Shares are now up 12% from where they were then, despite the company suspending its dividend during the pandemic.
The Bottom Line
Nordstrom remains under family control despite the death of former CEO Blake Nordstrom in 2019. Brothers Peter and Erik are now in charge.
While sales at department stores have been cut in half since 2007, Nordstrom has adapted well. Half its sales are now done online. It has concentrated its efforts in the 20 largest markets. It also has plans to expand in homewares, against Williams-Sonoma (NYSE:WSM), privately owned Pottery Barn and German-owned Crate & Barrel.
If Nordstrom can goose growth there and continue taking advantage of a void in high-end clothing, it could bring back its dividend and become a sound, conservative investment for the 2020s. It’s now selling at just nine times its earnings projection for next year, and if the dividend returns it could easily rise further.
At the time of publication, Dana Blankenhorn directly owned shares in AMZN.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Write him at firstname.lastname@example.org, tweet him at @danablankenhorn, or subscribe to his Substack newsletter.