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5 Reasons Nordstrom, Inc. Shareholders Should be Optimistic About the Future

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America's favorite high end department store has been bruised and battered the last 3 months - here's why shareholders can rest easy.

Published in: Business, Economy & Finance
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5 Reasons Nordstrom, Inc. Shareholders Should be Optimistic About the Future

  1. 1. 5 Reasons Nordstrom Inc. Shareholders Should be Optimistic About the Future
  2. 2. Rough third quarter • Nordstrom (NYSE: JWN) reported third quarter earnings on Nov. 12, 2015: – Sales increase of 6.6% – Comparable store sales up 0.9% – Net Income of $0.43 per share • Includes $0.17 per share of one-time expenses related to sale of credit card portfolio • Represents 20% drop from same quarter last year
  3. 3. Rough third quarter • Shares in Nordstrom and its peers quickly sold off in the face of lackluster sales results: – Macy’s (NYSE: M) shares dropped following disappointing same store sales results of (3.9%) on Nov. 11, 2015 – Despite strong comparable results, J.C. Penney was dragged down with the sector
  4. 4. But wait . . . Despite these poor quarterly results, Nordstrom has a bright future.
  5. 5. #1: Investing in a connected world • Nordstrom is fully aware that the retail landscape has changed drastically over the last 20 years – Investing in mobile purchase-and-pickup applications – Invested in three enormous fulfillment warehouses • This has already born fruit: – Online sales were 8% of revenue in FY 2010 – Projected to be 25% of revenue in FY 2020 • Goal is to provide the “richness of stores with convenience of online”
  6. 6. #2: Expanding customer base • Nordstrom has been successfully expanding beyond traditional department stores • Nordstrom Rack, its off-price chain initiative, continues to exceed expectations: – Has grown from 86 locations in FY 2010 to over 194 today – Expected to grow to over 300 locations by FY 2020 • Purchased personalized clothing online retailer “Trunk Club” – Integrating with the rest of Nordstrom’s offerings
  7. 7. #3: Canadian expansion • Nordstrom currently has plans to break into Canadian market in a big way – $1 billion estimated sales potential – Calgar, Ottawa, and Vancouver flagship stores already open – Three stores planned for Toronto in the next year • Early results are extremely positive – Stores already open in Canadian market experienced record- setting openings
  8. 8. #4: Continuing a history of innovation • Nordstrom building up strong fulfillment capabilities for online purchases • Currently has three enormous facilities across U.S. – Cedar Rapids, IA for full-price order fulfillment – Elizabethtown, PA for full-price order fulfillment – San Bernadino, CA for off-price order fulfillment • Offering free shipping and returns in order to engender customer use and loyalty
  9. 9. #4: Continuing a history of innovation Source: Nordstrom Inc. Investor Presentation December 7, 2015
  10. 10. #5: A history of outperformance • One quarter does not a company make • Nordstrom has a history of strong operating performance • Five-year average return on equity of 35% • Five-year average annual sales growth of 7.1% • Five-year average earnings per share growth of 6.2% • Nordstrom projected to continue to grow at a decent clip through end of the decade • FY 2020 EPS estimate of $4.96 • Implies annualized earnings per share growth of 7.8% through the end of the decade
  11. 11. Foolish Final Thoughts • Disillusioned Nordstrom shareholders need not fear • Long-term picture is solid • Nordstrom continues to invest in the future while still operating an exceptional retail operation • Given current price-to-earnings of 13.4 times and forward growth profile, the sky is definitely not falling
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