Nordstrom, Inc. (JWN) Q4 2023 Earnings Call Transcript
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Overview
The earnings call shows strong EPS growth and margin improvement, with Nordstrom Rack net sales increasing significantly. Despite a slight decrease in digital sales, the company demonstrates operational efficiency and inventory management. The Q&A reveals optimism about Rack store openings and profitability in digital channels. While there are some uncertainties, such as the impact of the CFPB ruling, overall guidance and strategic initiatives point to positive growth. Given the market cap, a 2% to 8% stock price increase is anticipated.
Key Financial Performance
Net Sales $4.3 billion, flat year-over-year, with a 460 basis point benefit from the 53rd week and a 250 basis point unfavorable impact from the wind down of Canadian operations.
Earnings Per Share (EPS) $0.96, up from $0.74 year-over-year.
Gross Margin 34.4%, increased by 125 basis points year-over-year due to lower markdowns, lower buying and occupancy costs, and leverage on higher sales.
EBIT Margin 5.7%, compared to 4.5% in the year-ago quarter.
Total GMV Increased by 2% in the fourth quarter.
Nordstrom Banner Net Sales Decreased by 3%, with a 410 basis point benefit from the 53rd week and a 355 basis point negative impact from the wind down of Canadian operations.
Nordstrom Rack Net Sales Increased by 15%, including a benefit of 580 basis points related to the 53rd week.
Digital Sales Decreased by 2% compared to the same period in fiscal 2022, representing 38% of total sales.
Ending Inventory Decreased by 3% in the quarter.
SG&A Expenses Increased by 85 basis points as a percentage of net sales, including a $32 million supply chain asset impairment charge.
Available Liquidity $1.4 billion, including over $600 million in cash.
Operating Highlights
New Product Launches: Nordstrom plans to launch digital markets on nordstrom.com starting in April 2024, expanding their curated online assortment.
Merchandise Performance: Active, Beauty, and Women's Apparel were the best-performing categories in Q4, with strong growth in brands like On Running, Hoka, and Vuori.
Market Expansion: Nordstrom opened 19 new Rack stores in 2023 and plans to open 22 new stores in 2024, which is a key strategy for customer acquisition.
Operational Efficiencies: Nordstrom achieved a positive sales to inventory spread in Q4 and improved supply chain capabilities, resulting in a 50+ basis points improvement in variable supply chain expenses.
Inventory Management: The company reduced aged inventory and improved overall inventory newness, setting a strong foundation for the new fiscal year.
Strategic Shifts: Nordstrom is relocating operations from its San Bernardino fulfillment center to a more automated facility in Riverside, resulting in a $32 million asset impairment.
Accounting Method Change: Nordstrom is transitioning from retail to cost accounting for inventory, which is expected to impact profitability slightly in 2024.
Risk or Challenges
Supply Chain Optimization Risks: The relocation of operations from the San Bernardino fulfillment center to the Riverside omnichannel center resulted in a $32 million asset impairment and related charge.
Consumer Spending Risks: The company anticipates a cautious consumer environment due to inflation, higher interest rates, and the resumption of student loan payments, which may impact discretionary purchases.
Accounting Method Change Risks: The transition from retail to cost accounting is expected to create a slight headwind in 2024 results, particularly affecting profitability in the first half of the year.
Competitive Pressures: The company faces competitive pressures in the retail market, particularly in the Nordstrom banner, where net sales decreased by 3% in Q4.
Inventory Management Risks: While inventory levels improved, the company must continue to manage inventory effectively to avoid markdowns and maintain profitability.
Tax Rate Increase Risks: An anticipated increase in the effective tax rate by 2 percentage points relative to 2023 may impact overall profitability.
Guidance & Outlook
2023 Priorities: Focus on improving Nordstrom Rack performance, increasing inventory productivity, and optimizing supply chain capabilities.
New Store Openings: Opened 19 new Nordstrom Rack stores in 2023, with plans to open 22 more in 2024.
Digital Market Launch: Launching digital markets on nordstrom.com in April 2024 to expand product assortment and enhance customer experience.
Supply Chain Optimization: Relocating operations from San Bernardino to Riverside to improve efficiency and reduce processing costs.
Inventory Management: Improved inventory levels and reduced aged items, setting up for a consistent flow of relevant products.
2024 Revenue Guidance: Expect full year revenue to decline by 2% to increase by 1%, with a headwind of approximately 135 basis points from the 53rd week.
EBIT Margin Guidance: Expect EBIT margin in the range of 3.5% to 4% for 2024.
Earnings Per Share Guidance: Anticipate full year EPS in the range of $1.65 to $2.05.
Capital Expenditures: Plan for capital expenditures of 3% to 4% of net sales.
Debt Reduction Target: Targeting a leverage ratio below 2.5x.
Shareholder Return Plan
Quarterly Cash Dividend: The Board of Directors declared a quarterly cash dividend of $0.19 per share.
Share Repurchase Program: None
Key Q&A
Earnings Word Cloud
JWN Transcript
The earnings call presented a mixed picture: positive sales growth and improved gross profit margins, but concerns over high inventory levels and unclear management responses about a recent slowdown. The guidance suggests a flat to slightly positive outlook, while liquidity remains strong. However, the market may react cautiously due to management's evasiveness on certain issues and potential risks in Q4. Given the moderate market cap, these factors are likely to balance out, resulting in a neutral stock price movement prediction.
The earnings call summary shows strong financial performance with revenue and EPS growth, margin expansion, and digital sales growth. The optimistic guidance and dividend declaration are positive signals. However, inventory growth exceeding sales and supply chain challenges are concerns. The Q&A section reveals confidence in women's apparel and operational optimization, though inventory alignment is needed. Given the market cap and strategic initiatives, the stock is likely to see a positive movement of 2% to 8% in the short term.
The earnings call summary presents a mixed outlook. Financial performance shows stable but not exceptional results, with slight revenue guidance decline and moderate EBIT margin. Product development and market strategy are positive, with new store openings and digital initiatives. However, gross margin pressures, due to operational factors like theft, and a lack of significant margin differences between Nordstrom and Rack, indicate challenges. The Q&A section reveals management's evasive responses on critical issues, suggesting potential uncertainties. Overall, the sentiment is neutral, reflecting balanced positives and negatives.
The earnings call shows strong EPS growth and margin improvement, with Nordstrom Rack net sales increasing significantly. Despite a slight decrease in digital sales, the company demonstrates operational efficiency and inventory management. The Q&A reveals optimism about Rack store openings and profitability in digital channels. While there are some uncertainties, such as the impact of the CFPB ruling, overall guidance and strategic initiatives point to positive growth. Given the market cap, a 2% to 8% stock price increase is anticipated.
JWN Report
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