Nordstrom: Beating the Competition in a Tough Environment

In times when even solid players such as Macy's and Dillard's are finding it hard to generate sales growth, Nordstrom is delivering impressive performance, while positioning itself for growth in the years ahead.

May 18, 2014 at 11:00AM

Jwn Image

Source: Nordstrom.

Nordstrom (NYSE:JWN) rose by 14.7% on Friday after reporting remarkably strong financial performance for the quarter ended on May 3. Even other successful industry players, such as Macy's (NYSE:M) and Dillard's (NYSE:DDS), are finding it hard to increase sales in the notoriously challenging retail environment lately, and this says a lot about Nordstrom and its competitive strengths.

Growing revenues and investing for growth
Nordstrom announced net earnings per share of $0.72 during the quarter ended on May 3. This was above the company's own guidance of between $0.60 and $0.70 for the quarter, and also better than the $0.68 per share forecast, on average, by Wall-Street analysts.

Sales during the quarter were particularly impressive; while most competitors are reporting sluggish top-line growth, Nordstrom announced a sales increase of 6.8% versus the same quarter in the prior year, to $2.8 billion. Comparable-store sales increased by a healthy 3.9% during the quarter.

Nordstrom Rack is becoming a considerable growth driver for the company lately. Sales increased by a whopping 20% year over year on the back of 27 new store openings and a jump of 6.4% in Nordstrom Rack same-store sales. Direct sales were also particularly strong during the quarter, with a 33% annual increase.

Gross margin declined by 124 basis points, to 35.8% of sales, though this was due to increased promotions, accelerated store expansion in the Nordstrom Rack division, and growth in the Nordstrom Rewards loyalty program. 

The Nordstrom Rewards program has 3.9 million active members. The company added more than 275,000 accounts during the quarter, an increase of approximately 25% versus the prior year. Sales from members represented 38% of total sales, increasing from 36% in the same period last year.

Management reaffirmed its earnings and sales guidance for the rest of the year, and the company plans to open three full-line stores and 17 Nordstrom Rack stores during the remainder of fiscal 2014.

Online is a key strategic area for Nordstrom when it comes to investments in the years ahead. The company plans to spend $3.9 billion in capital investments during the next five years, and technology will represent approximately $1.2 billion of that money, or 30% of Nordstrom's capital plan.

Even if profit margins are likely to remain under pressure due to new Nordstrom Rack openings and active investments in technology, management is doing the right thing by investing for the future, and positioning the company for growth over the long term.

Nordstrom vs. Macy's and Dillard's
Macy's and Dillard's are among the strongest companies in the business when it comes to performance during the last several years, yet Nordstrom has outgrown them by a considerable margin over time. 

JWN Revenue (TTM) Chart

JWN Revenue (TTM) data by YCharts.

Macy's has traditionally been able to sustain relatively strong financial performance in the face of difficult times for the industry. And the last quarter was no exception: Macy's reported better-than-expected earnings for the quarter ended on May 3, as diluted earnings per share came in at $0.60, a 9% increase versus the prior year and above the $0.59 per share forecast on average by analysts.

The strong performance on the bottom line was due to higher margins and a reduced share count, though. Sales declined by 1.7% versus the same quarter in the prior year on the back of a 0.8% drop in comparable-store sales, including sales from departments licensed to third parties.

Dillard's was another strong performer on Friday, rising by an explosive 14.9% as investors reacted with optimism to the company's earnings report. Dillard's reported earnings per share of $2.56 during the quarter, better than the $2.41 forecast by Wall Street analysts.

Merchandise sales didn't grow by much, though. The company announced a 1% increase in revenues from its retail business, to $1.54 billion, while comparable-store sales increased by 2% during the quarter. Dillard's is doing relatively well in comparison to most competitors, but the company is no match for Nordstrom when it comes to sales growth during the last quarter.

Even for well-run department stores generating solid profitability, sales growth has been remarkably difficult to achieve during the last quarter. Nordstrom's performance looks particularly encouraging when keeping in mind the notoriously tough environment affecting the industry lately.

Foolish takeaway
Nordstrom is delivering strong performance while positioning itself for growth in the years ahead. In times when even solid players such as Macy's and Dillard's are finding it hard to generate sales growth, Nordstrom stands one step ahead of the competition. This speaks wonders about the company's fundamental strengths and management team quality. 

The payments revolution can make you rich
The plastic in your wallet is about to go the way of the typewriter, the VCR, and the eight-track tape player. When it does, a handful of investors could stand to get very rich. You can join them -- but you must act now. An eye-opening new presentation reveals the full story on why your credit card is about to be worthless -- and highlights one little-known company sitting at the epicenter of an earth-shaking movement that could hand early investors the kind of profits we haven't seen since the dot-com days. Click here to watch this stunning video.

Andrés Cardenal has no position in any stocks mentioned. The Motley Fool owns shares of Dillard's. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers