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Nordstrom (JWN) Banks on Solid Online Show Amid Soft Store Traffic

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Nordstrom, Inc. JWN has been benefiting from strength in the technology space, driven by robust e-commerce and digital networks as well as improved supply-chain channels and marketing efforts. Also, expanded pickup options to 350 stores, including Nordstrom and Rack outlets along with two-day delivery or next-day pickup facilities in 20 markets, bode well. Notably, digital sales advanced 24% in fourth-quarter fiscal 2020, representing 54% of Nordstrom’s sales.

Moreover, broad-based improvement across the Nordstrom and Nordstrom Rack brands both in stores and online, positive response to the company’s gifting range and overhead cost reductions led to better-than-expected fiscal fourth-quarter results. Moreover, management issued an upbeat fiscal 2021 view. The company anticipates total revenue growth of more than 25%, with digital representing 50% of sales. Driven by expectations of improved gross margin and moderating of cost pressures, it expects EBIT margin to be 3% of sales in fiscal 2021. Also, stores are likely to remain open throughout 2021.

Further, the company, which shares space with L Brands (LB), Tapestry (TPR) and Gap (GPS), remains focused on its restructuring efforts to stay afloat amid the coronavirus situation. Notably, it surpassed the target of $370-$420 million in cash savings for fiscal 2020, net of COVID-related charges, driven by strong execution of its plans to create a leaner and more efficient organization. This led to more than $300 million of cash savings in fiscal 2020 as permanent overhead reductions.

However, it continues to struggle with soft sales and dismal store traffic due to continued impacts of COVID-19. Also, higher COVID-related costs stemming from lower sales volume, higher labor and shipping expenses, along with higher promotions remain concerns.

Bottom Line

Despite pandemic-related woes, we hope that the solid online show and robust demand are likely to aid Nordstrom’s top line and position it for better growth in the near term.

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