A pedestrian and cyclist wear facemasks outside a branch of department store chain Nordstrom in Santa Monica, California on May 11, 2020.
Frederic J. Brown | AFP | Getty Images
Nordstrom said Thursday it expects revenue to rise more than 25% in fiscal 2021 from the prior year, with roughly half of its sales coming from its digital business.
Last year, the department store chain rang up about a third of its sales online.
With shoppers changing their purchasing behaviors in the wake of the coronavirus pandemic, Nordstrom said it plans to focus its investments on smaller-format stores, building its off-price Rack business and e-commerce, as it tries to win back old customers and reach new ones.
Nordstrom’s anticipated 2021 sales growth comes in a bit lower than the 26.6% increase expected by analysts, according to a Refinitiv survey.
The company also expects earnings before interest and taxes to be positive in fiscal 2021, it said ahead of an virtual meeting with investors Thursday.
Nordstrom shares were halted ahead of the news release, up 4.1%. When they resumed trading, shares were down less than 1%.
While the pace of growth is staggering compared with previous years, Nordstrom will be lapping 2020, when its brick-and-mortar stores were closed for two quarters due to Covid restrictions in the spring. Sales were later hurt on the West Coast, as Covid-19 cases surged across the region into the fall and winter, prompting state officials to renew restrictions.
Nordstrom won’t report its fourth-quarter results until March 2. But the company has reiterated its previous outlook calling for sales to be down in the low 20% range compared with a year earlier. Earnings before interest and taxes are still expected to be positive, too.
Low single-digit revenue growth
Longer-term, Nordstrom said it expects revenue to grow at a low single-digit pace annually from 2019 levels, while profits continue to grow at a rate faster than sales. In 2019, Nordstrom reported net sales of $15.1 billion, marking a 2.2% decline from the prior year.
With a more affluent customer base, Nordstrom is seen as one of the strongest department store chains left standing in the United States. Its stores tend to be in better-performing malls and there are fewer of them, which has helped control its fixed costs. At the end of 2019, Nordstrom said 95% of its full-line department stores were located in so-called A-rated malls, while most of its Rack locations were in off-mall shopping centers. Its Rack business, which competes with the likes of TJ Maxx and Ross Stores, has helped Nordstrom reach shoppers who are more price conscious but still want designer brands.
Nordstrom’s stock has fallen about 3% over the past 12 months to a market value of $5.9 billion, while shares of Macy’s are down a little more than 10%, bring its value to $4.6 billion.
Kohl’s is up almost 9%, a boost that has given it the biggest market cap of the three, at $7.8 billion. Earlier Kohl’s said its holiday-quarter revenue is expected to fall 10%, but it is seeing sales strengthen since the start of the new year.
In the department store space, rivals like J.C. Penney and Neiman Marcus filed for bankruptcy protection last year. Macy’s and Penney have also closed hundreds of stores, while Nordstrom shuttered just 16 locations in 2020.
Nordstrom’s earlier investments online have paid off and boosted performance. It’s close to having half of its business come from digital, and that’s far ahead of rivals. Macy’s, for example, said its digital sales made up just 26% of total sales in 2019. And Kohl’s said its digital business represented 24% of net sales in 2019.
“We’d always thought about this and talked about this was going to happen at some point,” Nordstrom Chief Financial Officer Anne Bramman said in an interview. “It has just accelerated with the environment that we’re in right now.”
A bigger role for Nordstrom Rack
Nordstrom also envisions a bigger role for Rack in the future. Bramman said the company expects Rack to make up half of its sales in the near future, compared with about a third at the end of its most recently reported fiscal year.
It’s clear the company aims to gain a larger presence off mall, with even A-rated mall values tumbling in recent years.
“We continue to believe that [Nordstrom] has the potential to take profitable market share over time, as we see the business as well-positioned relative to peers,” Telsey Advisory Group founder Dana Telsey said in a note to clients ahead of Thursday’s meeting. “In our view, Nordstrom continues to operate in an off-price channel that has legs for growth … [and] a profitable digital presence that continues to grow.”
Another strategy that Nordstrom plans to use to win sales is to offer shoppers more selection: Nordstrom said it plans to increase the items it offers to more than 1.5 million from roughly 300,000 today.
Bramman explained the retailer plans to ramp up some of its private fashion labels, as it continues to work with “new and emerging brands, and expanding our partnerships with some of our bigger brands.”
“We’re executing a new playbook, but it’s a lot of foundations that have already been put in place,” Bramman said.
This story will be updated during Nordstrom’s investor meeting. Please check back for updates.