Nordstrom, Inc. (NYSE:JWN) has firmly established itself as a leading department store retailer, navigating the ever-changing retail environment with a blend of strategic adaptability and a steadfast commitment to serving its loyal customer base. With a rich history spanning over a century, the company has continuously reinvented itself, emerging as a premier destination for fashion-conscious consumers seeking exceptional shopping experiences.
Business Overview: Nordstrom's origins trace back to 1901 when John W. Nordstrom and Carl F. Wallin opened a small shoe store in Seattle, Washington. Over the decades, the company has evolved from a single shoe store to a renowned multi-brand retailer, offering a diverse range of apparel, accessories, beauty products, and home goods. In 1928, Nordstrom opened its first full-line department store, marking a significant milestone in the company's expansion.
During the 1960s, Nordstrom embarked on an aggressive expansion plan, opening new stores throughout the Pacific Northwest. This growth strategy continued, and in 1971, the company went public, listing its shares on the New York Stock Exchange. Throughout the following decades, Nordstrom continued to add locations across the country, solidifying its reputation as a premier shopping destination known for its wide selection of high-quality merchandise and exceptional customer service.
The 1990s and 2000s brought new challenges to Nordstrom, as changing consumer preferences and the growth of e-commerce disrupted the traditional department store model. In response, the company invested heavily in its digital capabilities and omnichannel strategy, aiming to provide a seamless shopping experience for customers whether they were browsing in stores or online.
Today, Nordstrom operates a network of 93 full-line Nordstrom stores, 269 Nordstrom Rack off-price stores, and 6 Nordstrom Local service hubs across the United States. The company's two primary business segments are the Nordstrom banner, which encompasses the full-price Nordstrom stores and Nordstrom.com, and the Nordstrom Rack banner, which includes the Nordstrom Rack off-price stores and NordstromRack.com. This diverse portfolio allows Nordstrom to cater to a wide range of customers, from the luxury-seeking to the value-conscious, positioning the company to capitalize on evolving consumer preferences.
Financial Performance: Nordstrom's financial performance has showcased resilience in the face of industry challenges. For the fiscal year ended January 31, 2024, the company reported total revenue of $14.69 billion, a slight decrease compared to the previous year's $15.53 billion. Net income for the same period was $134 million, down from $245 million in the prior year. Operating cash flow for the fiscal year 2024 stood at $621 million, while free cash flow was $52 million.
In the most recent quarter (Q2 2024), Nordstrom delivered solid results with net sales of $3.89 billion, representing a 3.4% increase year-over-year. Net income for the quarter reached $122 million, while operating cash flow and free cash flow were $519 million and $406 million, respectively. The company's comparable sales increased by 1.9%, with positive performance in both the Nordstrom and Nordstrom Rack banners.
Liquidity: The company's liquidity position remained strong, with $679 million in cash and cash equivalents as of the end of Q2 2024. Nordstrom's balance sheet boasted a current ratio of 1.07 and a quick ratio of 0.41, indicating the company's ability to meet its short-term obligations. The company's debt-to-equity ratio stood at 3.02, reflecting a moderately leveraged capital structure.
Nordstrom maintains a robust liquidity position with an available credit line of $771 million. The company has no outstanding borrowings under its $1 billion revolving credit facility, which expires in May 2027. This facility allows Nordstrom to issue up to $800 million in commercial paper, providing additional financial flexibility.
Operational Highlights: Nordstrom has consistently demonstrated its ability to adapt to the changing retail landscape. The company's digital initiatives, including the enhancement of its e-commerce platforms and the integration of physical and digital channels, have been instrumental in meeting the evolving shopping preferences of its customers.
The Nordstrom Rack banner has been a key growth driver for the company, catering to the growing demand for off-price retail experiences. Nordstrom has strategically expanded its Rack footprint, opening 11 new Rack stores in the first half of fiscal 2024, with plans to open an additional 12 Rack stores by the end of the year. This expansion has contributed to the banner's strong performance, with Nordstrom Rack reporting an 8.8% increase in net sales and a 4.1% rise in comparable sales during the second quarter of fiscal 2024.
In the Nordstrom segment, which includes Nordstrom.com, Nordstrom U.S. stores, and Nordstrom Local service hubs, net sales and gross merchandise value (GMV) increased compared to the same period in fiscal 2023. The timing shift of the Anniversary Sale, with one day falling in the third quarter this year versus eight days last year, had a positive impact of approximately 200 basis points on Nordstrom net sales for the second quarter. For the six months ended August 3, 2024, Nordstrom net sales reflected an increase in the average selling price per item sold, partially offset by a decrease in the number of items sold. Comparable sales for the Nordstrom segment increased 0.9% in the second quarter and 1.3% in the six months ended August 3, 2024.
Nordstrom's commitment to providing exceptional customer service has also been a defining characteristic of the brand. The company's loyalty program, The Nordy Club, has been instrumental in fostering deeper connections with its most valuable customers, driving increased engagement and sales.
Risks and Challenges: While Nordstrom has demonstrated its resilience, the company faces several challenges inherent to the retail industry. The ongoing shift towards e-commerce, intense competition from both traditional and emerging players, and changing consumer preferences pose risks that Nordstrom must navigate effectively.
The company's heavy reliance on mall-based locations also exposes it to the evolving landscape of brick-and-mortar retail, with the potential decline of traditional malls posing a threat to Nordstrom's physical footprint. Additionally, the company's international expansion efforts, which included the recent wind-down of its Canadian operations, highlight the complexities of operating in diverse geographic markets.
Pandemic Impact and Recovery: The COVID-19 pandemic significantly impacted Nordstrom's operations, as the company grappled with temporary store closures and shifting consumer behavior. However, the company demonstrated agility in adapting to the new environment, accelerating its digital transformation and optimizing its supply chain and logistics capabilities.
During the pandemic, Nordstrom's online sales grew substantially, offsetting some of the declines in brick-and-mortar revenue. The company also implemented cost-saving measures, including inventory management and workforce adjustments, to preserve liquidity and navigate the challenging environment.
As the economy has gradually recovered, Nordstrom has seen a resurgence in customer demand. The company's second-quarter 2024 results showcased strong sales growth, with a 3.4% increase in total net sales and a 1.9% rise in comparable sales compared to the same period in the prior year.
Outlook and Future Initiatives: Looking ahead, Nordstrom remains focused on executing its strategic priorities to drive long-term growth and enhance shareholder value. The company has outlined several key initiatives, including:
1. Driving growth in the Nordstrom banner through continued digital innovation, enhancing the customer experience, and strengthening its merchandise assortment. 2. Optimizing its operations, with a focus on supply chain efficiencies, inventory management, and the deployment of advanced technologies like RFID to improve inventory visibility and accuracy. 3. Capitalizing on the momentum at Nordstrom Rack, further expanding the off-price footprint and leveraging its digital capabilities to reach a broader customer base.
Nordstrom has provided updated guidance for the fiscal year 2024, projecting a total revenue range of a 1% decline to a 1% increase compared to the prior year, which includes a headwind of approximately 135 basis points from the 53rd week in 2023's results. The company expects total company comparable sales to be in the range of flat to an increase of 2% in 2024 versus 52 weeks in 2023. The full-year EBIT margin is expected to be in the range of 3.6% to 4%, and earnings per share are projected to be between $1.75 and $2.05, excluding the impact of any share repurchases.
Industry Trends: The department store industry has faced challenges in recent years, with stagnant mall traffic and competition from e-commerce and off-price retailers. However, Nordstrom has been able to navigate these pressures better than many peers through its focus on customer experience and multi-channel strategy. The company's compound annual growth rate (CAGR) for revenue over the past 5 years has been 0.5%, demonstrating its ability to maintain relatively stable performance in a challenging retail environment.
Conclusion: Nordstrom's enduring legacy, coupled with its strategic adaptability, positions the company well to navigate the evolving retail landscape. The company's diversified business model, encompassing both full-price and off-price offerings, allows it to cater to a wide range of customer preferences. As Nordstrom continues to invest in digital capabilities, optimize its operations, and capitalize on the growth opportunities presented by its Nordstrom Rack banner, the company is well-equipped to enhance shareholder value and solidify its position as a leading player in the retail industry. With a strong balance sheet, robust liquidity position, and a clear strategic focus, Nordstrom is poised to continue its growth trajectory and adapt to the ever-changing demands of the retail sector.