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Nordstrom (NYSE:JWN) Q2: Beats On Revenue

StockStory - Thu Aug 24, 2023

JWN Cover Image

Luxury department store chain Nordstrom (NYSE:JWN) reported results ahead of analysts' expectations in Q2 FY2023, with revenue down 7.89% year on year to $3.77 billion. The company also reconfirmed its full-year revenue and EPS guidance, which were both in line with analysts' estimates. Nordstrom made a GAAP profit of $137 million, improving from its profit of $126 million in the same quarter last year.

Is now the time to buy Nordstrom? Find out by accessing our full research report, it's free.

Nordstrom (JWN) Q2 FY2023 Highlights:

  • Revenue: $3.77 billion vs analyst estimates of $3.69 billion (2.31% beat)
  • EPS: $0.84 vs analyst estimates of $0.49 (70% beat)
  • Free Cash Flow of $301 million, up from $67 million in the same quarter last year
  • Gross Margin (GAAP): 36.9%, in line with the same quarter last year
  • Store Locations: 351 at quarter end, decreasing by 6 over the last 12 months

"We've worked hard to improve our operating model, and our solid results reflect the continued progress we made against our top priorities to improve Nordstrom Rack performance, increase inventory productivity and deliver efficiencies through supply chain optimization," said Erik Nordstrom, chief executive officer of Nordstrom,

Known for its exceptional customer service that features a ‘no questions asked’ return policy, Nordstrom (NYSE:JWN) is a high-end department store chain.

Department stores emerged in the 19th century to provide customers with a wide variety of merchandise under one roof, offering a convenient and luxurious shopping experience. They played an important role in the history of American retail and urbanization, and prior to department stores, retailers tended to sell narrow specialty and niche items. But what was once new is now old, and department stores are somewhat considered a relic of the past. They are being attacked from multiple angles–stagnant foot traffic at malls where they’ve served as anchors; more nimble off-price and fast-fashion retailers; and e-commerce-first competitors not burdened by large physical footprints.

Sales Growth

Nordstrom is larger than most consumer retail companies and benefits from economies of scale, giving it an edge over its competitors.

As you can see below, the company's revenue has declined over the last four years, dropping 1.19% annually as its store count has shrunk.

Nordstrom Total Revenue

This quarter, Nordstrom's revenue fell 7.89% year on year to $3.77 billion but beat Wall Street's estimates by 2.31%. Looking ahead, the Wall Street analysts covering the company expect revenue to remain relatively flat over the next 12 months.

The pandemic fundamentally changed several consumer habits. There is a founder-led company that is massively benefiting from this shift. The business has grown astonishingly fast, with 40%+ free cash flow margins. Its fundamentals are undoubtedly best-in-class. Still, the total addressable market is so big that the company has room to grow many times in size. You can find it on our platform for free.

Number of Stores

A retailer's store count is a crucial factor influencing how much it can sell, and store growth is a critical driver of how quickly its sales can grow.

When a retailer like Nordstrom keeps its store footprint steady, it usually means that demand is stable and it's focused on improving its operational efficiency to increase profitability. Nordstrom's store count shrank by 6 locations, or 1.68%, over the last 12 months to 351 total retail locations in the most recently reported quarter.

Nordstrom Operating Retail Locations

Taking a step back, the company has kept its physical footprint more or less flat over the last two years while other consumer retail businesses have opted for growth. A flat store base means that revenue growth must come from increased e-commerce sales or higher foot traffic and sales per customer at existing stores.

Key Takeaways from Nordstrom's Q2 Results

With a market capitalization of $2.84 billion, Nordstrom is among smaller companies, but its $885 million cash balance and positive free cash flow over the last 12 months give us confidence that it has the resources needed to pursue a high-growth business strategy.

We were impressed by how significantly Nordstrom blew past analysts' EPS expectations this quarter. We were also glad it beat Wall Street's revenue estimates. That really stood out as a positive in these results and the company seems to be on the right track. The stock is up 2.58% after reporting and currently trades at $17.24 per share.

So should you invest in Nordstrom right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.

One way to find opportunities in the market is to watch for generational shifts in the economy. Almost every company is slowly finding itself becoming a technology company and facing cybersecurity risks and as a result, the demand for cloud-native cybersecurity is skyrocketing. This company is leading a massive technological shift in the industry and with revenue growth of 50% year on year and best-in-class SaaS metrics it should definitely be on your radar.

The author has no position in any of the stocks mentioned in this report.

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