Here's Why Nordstrom (JWN) Stock is a Solid Investment Bet

Nordstrom, Inc. JWN has been benefiting from its robust strategic endeavors, including solid omni-channel capabilities and efforts to keep pace with the evolving retail trends, among others. Also, the company is progressing well with its customer-based strategy and is poised well for long-term growth.

Impressively, the company delivered eight earnings beats in the preceding nine quarters, with sales surprise in four of the trailing five quarters. This positive top- and bottom-line trend continued in second-quarter fiscal 2018 as well, wherein both the metrics improved on a year-over-year basis.

Robust first-half numbers propelled management to raise its guidance for fiscal 2018. Net sales are now projected in the band of $15.4-$15.5 billion, up from $15.2-$15.4 billion, guided earlier. Earnings per share are now envisioned in the range of $3.50-$3.65 for the fiscal year, up from the prior guidance of $3.35-$3.55 and $2.59 earned in fiscal 2017. Let’s take a detailed look into the company’s initiatives.

Growth Drivers

Nordstrom is consistently focusing on store-expansion strategy to boost revenues and gain market share. Additionally, the company remains keen on prioritizing investments in the top North American markets. In Canada, Nordstrom has successfully completed the planned full-line store expansion by opening six stores. Further, it remains on track to open three stores in fall 2018.

Moreover, Nordstrom Local, the company’s first modern retailing concept store that does not stock merchandise, is quite appealing. This is quite different from the traditional retail concept, a neighborhood store, where the company's services are easily available in a centralized location. These neighborhood hubs form part of the company’s local market strategy to offer a seamless experience along “buy online, pickup in store”, alterations and personal styling services. Recently, the company introduced two Nordstrom Local stores in Brentwood and Downtown, Los Angeles.

Earlier this year, Nordstrom entered into a partnership with Urban Outfitters’ URBN Anthropologie. Following the transaction, more than 200 items from Anthropologie Home are now available at selected Nordstrom full-line stores and on Nordstrom.com. The Anthropologie Home collection comprise categories including kitchen, dining and entertaining, bed and bath textiles, room decor, stationery and hardware.

Apart from widening its footprint through store openings, Nordstrom is strengthening capabilities by investing in the technology space. Management is boosting e-commerce and digital networks as well as improving its supply-chain channels and marketing efforts. It also purchased two major retail technology entities — BevyUp and MessageYes — to cater to customers preferring online shopping. While BevyUp is a leading digital selling device, MessageYes is an iconic platform for conversational trading. In fact, the company’s second-quarter fiscal 2018 results reflected significant progress on its digital strategy. Its digital sales improved 23%, with digitally-enabled sales contribution growth to 34%, up from 29% in the prior-year quarter.

Other leading retailers that are significantly gaining from its omni-channel experience including e-commerce are American Eagle Outfitters, Inc. AEO and Abercrombie & Fitch Co. ANF. American Eagle’s digital sales contributed about 24% to net sales in second-quarter fiscal 2018, which marked the company’s 14th straight quarter of double-digit e-commerce growth. Abercrombie’s Direct-to-Consumer (DTC) sales surged 16% in second-quarter fiscal 2018 and accounted for nearly 26% of net sales.

Nordstrom’s customer-based strategy, which is on track to reach the long-term growth target of $20 billion by 2020, is an added positive. With regard to cost savings, the company plans to strike a balance between its sales and expense growth. Notably, Nordstrom is making amendments to its operating model in response to the constant slowdown in mall traffic resulting from customers’ shift to online shopping. We believe these efforts will help the company to deliver sustainable growth over the long term.

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