Leading fashion specialty retailer Nordstrom, Inc. JWN continues to impress with its robust long-term strategies, continued focus on store expansion, efforts to remain updated with the evolving industry trends and impressive earnings history. Driven by these factors, the company's shares outperformed the Zacks categorized Retail – Apparel/Shoes industry, which has been facing tough times owing to volatile consumer behavior, sluggish mall traffic and other macroeconomic hurdles.
While a challenging retail landscape has caused this Zacks Rank #3 (Hold) stock to slip 2.3% in the last three months, it still compares favorably with the industry’s decline of 8.3%. So let’s delve deeper into Nordstrom’s growth drivers and see if it can sustain this outperformance.
Operating in a consumer-driven space requires companies to cohere with the trends of the evolving retail industry that is focused on offering maximum choices to customers to enhance their shopping experience. Nordstrom has been doing exactly this, which has helped it to keep its position intact despite a difficult landscape.
The company continues to allocate a major portion of its capital efficiently toward its multichannel growth strategy, which is focused on improving its merchandise offerings; developing IT infrastructure to enhance web and mobile experience of customers; renovating stores with a modern look and developing fulfillment centers to enable speedy delivery to online customers. The company also makes regular amendments to its clearance strategy in order to manage its inventories better, keep up with customer demands and provide them with a better shopping experience.
Apart from this, Nordstrom is making significant progress with respect to its customer-based strategy and is on track to reach its long-term growth target of $20 billion by 2020. In doing so, the company is executing its strategy of enhancing market share and strengthening capabilities through further investments. With regard to cost savings, the company plans to strike a balance between its sales and expense growth. In this regard, Nordstrom revealed plans to cut costs through a phased approach and eliminate about 300–400 jobs, in response to the constant slowdown in mall traffic resulting from customers’ shift to online shopping.
Further, Nordstrom is focused on advancing in the technology space by boosting e-commerce and digital networks and improving its supply-chain channels and marketing efforts. On the back of enhanced digital operations the company’s online business crossed $3 billion in fiscal 2016. In fact, Nordstrom’s online sales formed nearly 25% of the company’s business in the fiscal. All the aforementioned growth endeavors, along with constant store expansion facilitated the company to post solid fourth-quarter fiscal 2016 earnings that rose year over year and marked its third straight beat.
However, Nordstrom remains susceptible to the macroeconomic headwinds looming over the retail environment. The company’s global presence also exposes it to the risk of adverse foreign currency fluctuations, among other risks associated with operating internationally. Further, the company faces stiff competition from other major players that poses threats to its operating performance and market share.
Nonetheless, we believe that Nordstrom’s growth efforts should continue to help it to counter these obstacles. Moreover, the company’s latest share buyback plan is likely to draw investors’ attention. Thus, we suggest investors to hold on to Nordstrom, as it is most likely to deliver sustainable growth over the long term.
Stocks to Consider
Some better-ranked stocks in the same industry include The Children's Place, Inc. PLCE, Kate Spade & Company KATE and Foot Locker, Inc. FL. While Children's Place and Kate Spade sport a Zacks Rank #1 (Strong Buy) each, Foot Locker currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Children's Place has an average positive earnings surprise of 39% in the trailing four quarters. The stock has a long-term growth rate of 8%.
Kate Spade, with long-term earnings per share growth rate of 28.3%, has delivered positive earnings surprise in the last two quarters.
Foot Locker has delivered positive earnings surprise in the last three quarters. The stock has a long-term growth rate of 9.7%.
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Foot Locker, Inc. (FL): Free Stock Analysis Report
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Zacks Investment Research
March 31, 2017 at 06:55PM
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