Nordstrom, Inc. (JWN) Q3 2024 Earnings Call Transcript
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Overview
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.
Key Financial Performance
Net Sales $3.3 billion, up 4.6% year-over-year. Growth driven by positive results at both Nordstrom and Nordstrom Rack, with a notable impact from the timing shift of the Anniversary Sale.
Comparable Sales Increased 4% year-over-year, with both banners showing positive comps.
Digital Sales Growth Over 6% growth year-over-year, contributing to the overall sales increase.
Gross Profit Margin Expanded 60 basis points to 35.6%, primarily due to strong regular price sales.
EBIT Margin Expanded 45 basis points to 2.9%, driven by a more than 25% year-over-year increase in EBIT dollars.
Earnings Per Share (EPS) $0.33, up from $0.25 year-over-year, largely driven by leverage on higher sales and gross margin expansion.
Ending Inventory Increased 5.9% year-over-year, slightly higher than desired, driven by seasonal categories and new Rack store openings.
Selling, General and Administrative Expenses (SG&A) 36.6% of net sales, up 25 basis points year-over-year, primarily due to higher labor costs and accelerated technology depreciation.
Credit Card Revenues Declined modestly as a percentage of total revenue, driven by higher losses, partially offset by higher balances.
Available Liquidity $1.2 billion, including just under $400 million in cash.
Operating Highlights
Digital Sales Growth: Digital sales growth of over 6% in Q3, supported by enhancements to the search and discovery functionality on the website and app.
Marketplace Business: Marketplace business now has over 300 sellers, with plans to continue growth in 2025 and beyond.
New Product Launches: Launched buy online and pick-up in store at over 100 Rack stores, enhancing customer convenience.
New Rack Store Openings: Opened 12 new Rack stores in Q3, bringing the total to 23 for the year, consistent with plans to open 20 to 25 new Racks annually.
Customer Acquisition: New Rack stores are a significant source of customer acquisition, attracting new customers and increasing brand awareness.
Operational Optimization: Supply chain team improved order fulfillment speed, resulting in over 40% improvement in the speed of customer returns.
Inventory Management: Inventory grew 6% year-over-year, with a focus on high-quality brands and seasonal categories.
Strategic Focus: Prioritizing customer experience and operational efficiencies as key strategies for growth.
Market Positioning: Positioning Nordstrom Rack as a differentiator in off-price retail, focusing on brand offerings and customer service.
Risk or Challenges
Sales Trends: There was a noticeable decline in sales trends towards the end of October, which has raised concerns about the upcoming holiday season.
Inventory Levels: Ending inventory increased 5.9% year-over-year, which is slightly higher than desired, particularly to support the Rack business and due to unseasonably warm weather affecting cold weather categories.
Economic Environment: The external environment remains uncertain, with potential impacts from economic factors and consumer behavior, including distractions from the election.
Promotional Environment: The fourth quarter is expected to be promotional, which is typical for retailers during the holiday season.
Shrinkage: Shrink remains at all-time highs, which poses a long-term risk to achieving expanded margins.
Supply Chain Challenges: The company is focused on optimizing supply chain operations to improve speed and efficiency, which is critical for customer satisfaction and financial outcomes.
Competitive Pressures: The company faces competitive pressures from other retailers, particularly in the off-price segment, which necessitates a focus on brand strength and pricing strategies.
Guidance & Outlook
Net Sales Growth: Net sales reached over $3.3 billion with a 4% comparable sales growth for both Nordstrom and Nordstrom Rack.
Digital Sales Growth: Digital sales grew over 6%, supported by enhancements to the search and discovery functionality on the website and app.
New Store Openings: Opened 12 new Rack stores in Q3, totaling 23 for the year, consistent with plans to open 20 to 25 new Racks annually.
Marketplace Business: Continued scaling of the Marketplace business with over 300 sellers, aiming for growth in 2025 and beyond.
Operational Optimization: Supply chain improvements led to a 40% increase in the speed of customer returns, enhancing inventory turnover.
Customer Experience Initiatives: Launched buy online, pick-up in store at over 100 Rack locations, enhancing customer service and convenience.
Full-Year Revenue Guidance: Updated guidance for full-year revenue is flat to an increase of 1%, considering a headwind of approximately 135 basis points from the 53rd week in 2023.
Comparable Sales Growth: Expect total company comparable sales growth of 1% to 2% in 2024.
EBIT Margin Guidance: Full-year EBIT margin expected in the range of 3.6% to 4.0%.
Earnings Per Share Guidance: Full-year EPS expected in the range of $1.75 to $2.05, excluding share repurchases.
Capital Allocation Priorities: Focus on investing in high-return projects, reducing leverage, and returning cash to shareholders.
Shareholder Return Plan
Quarterly Cash Dividend: The Board of Directors declared a quarterly cash dividend of $0.19 per share.
Shareholder Return Plan: The company is exploring avenues to enhance shareholder value, including a proposal from members of the Nordstrom family to take the company private.
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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