Nordstrom stock is down about 37% in the past 12 months, making it a cheap bet for investors. Another reason shares are worth a look—Nordstrom’s off-the-charts customer service, says John San Marco, a senior research analyst at Neuberger Berman.
The stock (ticker: JWN) has fallen after third-quarter earnings missed analysts expectations, and the company’s Nordstrom Rack business showed pricing weakness. By contrast, Macy’s (M) has gained 103% in the past year in part by reducing its stores by nearly 100, and driving more demand online during the pandemic.
Among the positives that could boost Nordstrom’s stock, San Marco cited the company’s early move into e-commerce—an operation that is efficiently managed. Nordstrom also makes transactions smooth for customers to return online purchases at its physical stores. Nordstrom’s customer base is also loyal thanks to its “remarkable in-store service levels,” he says.
The company gets 40% of its sales online and has about 100 full-service stores, while using small neighborhood stores in urban areas for online pickups, returns, and alterations.
The Seattle, Washington-based fashion retailer started as a family shoe store in 1901, has since grown into 306 stores, as of October 2021, according to FactSet. It has a market cap of about $3.6 billion as of Tuesday.
“Brands want to be included and discovered at Nordstrom because they have such a good relationship with customers,” San Marco says.
The stock is up 2.8% so far this year, and is one of Barron’s 10 favorite stocks for 2022.
One trend that Nordstrom, like other retailers, must contend with: some brands are boosting sales directly to consumers via their own physical stores and websites in order to capture revenue directly, San Marco says, adding that this allows for more control over their marketing and advertising. The biggest ramification for retailers is the loss of revenue and potentially the customer relationship, he says. Retailers may have to offer incentives or negotiate margins in order with coveted brands.
Looking ahead for Nordstrom, “I’d like to see more progress, managing expenses, to start with,” San Marco says. “We’ve had some reason to believe in the longer term margin targets that they’ve set.”
In December, Bloomberg News reported that Nordstrom is working with AlixPartners to review options, including a potential spin off, for Nordstrom Rack, its off-price business. Such a move might take away from Nordstrom’s “seamless experience” for customers in terms of service, San Marco said.
Nordstrom is cheap based on its enterprise value (market value plus net debt), putting it at a discount to peers like Dillard’s (DDS), according to FactSet.
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