Breaking Down Nordstrom, Inc. (JWN) Financial Health: Key Insights for Investors

Understanding Nordstrom, Inc. (JWN) Revenue Streams

Understanding Nordstrom, Inc.’s Revenue Streams

Nordstrom, Inc. operates through two primary revenue sources: its flagship stores and Nordstrom Rack. The following table summarizes the net sales for the second quarter and the first six months of fiscal year 2024 compared to the same periods in 2023.

The total net sales for Q2 2024 increased by 3.4% compared to Q2 2023, driven largely by a strong performance at Nordstrom Rack, which saw an increase of 8.8% in net sales during the same period. The flagship stores reported a modest increase of 0.9%.

Year-over-Year Revenue Growth Rate

Year-over-year revenue growth has shown fluctuating trends:

• Q2 2024: Total Company net sales increased by 3.4% compared to Q2 2023.
• 6 Months 2024: Total Company net sales increased by 4.2% compared to the same period in 2023.
• Q2 2023: Total Company net sales decreased by 8.3% compared to Q2 2022.
• 6 Months 2023: Total Company net sales decreased by 9.8% compared to the same period in 2022.

Contribution of Different Business Segments to Overall Revenue

The contribution to overall revenue from different business segments is illustrated below:

This data indicates a slight shift in revenue contributions, with Nordstrom Rack increasing its share of total revenue.

Significant Changes in Revenue Streams

In fiscal 2024, the company has noted a significant impact on revenue due to the timing shift of the Anniversary Sale, which positively affected net sales by approximately 100 basis points for Q2 2024. Additionally, the wind-down of Canadian operations had a negative impact of 35 basis points on total Company net sales for the six months ended August 3, 2024.

Digital sales have also shown growth, comprising 37% of total net sales in Q2 2024, up from 36% in Q2 2023. This reflects a 6.2% increase in digital sales compared to the previous year's second quarter.

The company anticipates total revenue for fiscal 2024 to range from a 1.0% decline to a 1.0% growth compared to the 53-week fiscal 2023, considering the impact of the 53rd week on the previous year's performance.

Overall, the revenue analysis indicates a positive trend in certain segments, particularly in Nordstrom Rack, while facing challenges from external factors such as the Canadian market exit and changes in sales timing.

A Deep Dive into Nordstrom, Inc. (JWN) Profitability

Profitability Metrics

In assessing the financial health of the company, key profitability metrics provide valuable insights into its operational efficiency and overall performance. Below, we break down the gross profit, operating profit, and net profit margins, along with trends over time and comparisons to industry averages.

Gross Profit, Operating Profit, and Net Profit Margins

Trends in Profitability Over Time

The gross profit margin improved in Q2 2024 to 36.6%, up from 35.0% in Q2 2023, reflecting a positive trend driven by higher sales volume and effective cost management. However, the operating profit margin decreased slightly by 0.3% percentage points to 5.0% in Q2 2024, primarily due to a supply chain asset impairment charge.

Net profit margins also saw a decline, dropping to 3.2% from 3.8% in the previous year. Despite this, the overall net profit for the six-month period showed a significant recovery, moving from a loss of $67 million in 2023 to a profit of $83 million in 2024.

Comparison of Profitability Ratios with Industry Averages

When comparing these metrics to industry averages, the gross profit margin of 36.6% is above the retail industry average of approximately 30%. The operating profit margin of 5.0% aligns closely with the industry average, while the net profit margin of 3.2% is slightly below the retail average of 4.0%.

Analysis of Operational Efficiency

Operational efficiency can be assessed through various metrics, including the selling, general, and administrative (SG&A) expenses as a percentage of net sales. For Q2 2024, SG&A expenses totaled $1,303 million, representing 34.4% of net sales, an increase from 32.8% in Q2 2023. This uptick is attributed to higher variable costs and a supply chain asset impairment charge.

Moreover, the company’s inventory turnover rate improved to 3.7 in Q2 2024 from 3.4 in Q2 2023, indicating better management of inventory levels relative to sales.

Debt vs. Equity: How Nordstrom, Inc. (JWN) Finances Its Growth

Debt vs. Equity: How Nordstrom, Inc. Finances Its Growth

Debt Levels

As of August 3, 2024, the company reported a total long-term debt of $2,615 million and current liabilities of $3,218 million. The current portion of long-term debt is $0, while the company had no outstanding borrowings under its Revolver facility.

Debt-to-Equity Ratio

The debt-to-equity ratio stands at approximately 2.76, calculated using total liabilities of $4,607 million against total shareholders' equity of $948 million as of August 3, 2024. This ratio indicates a high reliance on debt financing compared to equity, which is above the industry average of around 1.2 for retail companies.

Recent Debt Issuances and Credit Ratings

During the first quarter of 2024, the company retired its 2.30% senior notes due in April 2024 using cash on hand. The current credit ratings are as follows: Moody’s at Ba2 (Stable), S&P Global Ratings at BB+ (Negative), and Fitch Ratings at BB (Stable).

Debt Issuance Summary

Balance Between Debt Financing and Equity Funding

The company strategically balances its debt financing and equity funding by utilizing operational cash flows for capital expenditures and debt repayments. As of August 3, 2024, cash and cash equivalents totaled $679 million, with additional liquidity available under the Revolver of $771 million. This liquidity is crucial for maintaining operational flexibility and supporting growth initiatives.

Cash Flow Summary

In summary, the company’s current structure demonstrates a significant reliance on debt, highlighting the importance of managing its financial health amid evolving market conditions.

Assessing Nordstrom, Inc. (JWN) Liquidity

Assessing Liquidity and Solvency

Current and Quick Ratios

The current ratio for the company as of August 3, 2024, stands at 1.07. This is calculated by dividing current assets of $3,448 million by current liabilities of $3,218 million. The quick ratio, which excludes inventories, is approximately 0.51, derived from current assets minus inventories ($1,304 million) divided by current liabilities.

Analysis of Working Capital Trends

Working capital, defined as current assets minus current liabilities, is $230 million as of August 3, 2024. This reflects a decrease from $964 million as of July 29, 2023, indicating potential liquidity concerns due to rising liabilities or stagnant asset growth.

Cash Flow Statements Overview

The cash flow from operating activities for the six months ended August 3, 2024, was $528 million, an increase from $465 million in the same period last year. Cash used in investing activities was $194 million, down from $229 million. Cash used in financing activities increased significantly to $283 million from $38 million in the prior year.

Potential Liquidity Concerns or Strengths

The company ended the second quarter of 2024 with $679 million in cash and cash equivalents, down from $885 million in the previous year. Additionally, there is $771 million of liquidity available on the Revolver, with no outstanding borrowings, which reflects a strong position to address short-term liquidity needs. However, the decrease in cash and increased financing activity could indicate a need for careful cash flow management moving forward.

Conclusion

Monitoring liquidity and solvency is crucial for maintaining operational stability. The current and quick ratios indicate a need for improvement, while cash flow trends suggest a solid operational performance despite increasing financial obligations.

Is Nordstrom, Inc. (JWN) Overvalued or Undervalued?

Valuation Analysis

To assess the financial health of the company, we will analyze key valuation ratios, stock price trends, dividend performance, and analyst consensus.

Valuation Ratios

The following table summarizes the key valuation ratios for the company:

Stock Price Trends

The stock price has shown the following trends over the past 12 months:

Dividend Yield and Payout Ratios

The dividend-related metrics are as follows:

Analyst Consensus

The consensus among analysts regarding the stock is as follows:

These insights provide a comprehensive overview of the company's valuation metrics and stock performance as of 2024.

Key Risks Facing Nordstrom, Inc. (JWN)

Key Risks Facing Nordstrom, Inc.

The financial health of Nordstrom, Inc. is subject to various internal and external risk factors that could significantly impact its performance. Below are the key risks identified for 2024.

Industry Competition

The retail industry is highly competitive, with numerous players vying for market share. In the second quarter of 2024, Nordstrom reported a 3.4% increase in total net sales compared to the same period in 2023, but this growth is challenged by aggressive pricing and promotional strategies from competitors. The company’s net sales for the Nordstrom Rack segment increased by 8.8% year-over-year, indicating a competitive push in the off-price retail segment as well.

Regulatory Changes

Changes in retail regulations, including labor laws and environmental standards, could impose additional compliance costs. The company’s operations in Canada, which were wound down, resulted in a negative impact on total net sales by 35 basis points. Adjustments to operational practices to meet new regulatory requirements could strain resources and impact profitability.

Market Conditions

Economic conditions, including inflation and changing consumer spending habits, pose risks. For fiscal year 2024, the company expects a total revenue range of 1.0% decline to 1.0% growth compared to the previous year. The shift in consumer preferences towards online shopping necessitates continuous adaptation to digital platforms, which could involve significant investment.

Operational Risks

Operational risks include supply chain disruptions and inventory management challenges. The company has reported that a charge related to a supply chain asset impairment impacted its adjusted EBIT, which was $244 million for the second quarter of 2024. Additionally, the inventory turnover rate improved to 3.7 from 3.4 year-over-year, reflecting efforts to optimize inventory management.

Financial Risks

Financial risks encompass debt obligations and interest rate fluctuations. The company reported interest expense of $26 million for the second quarter of 2024. As of August 3, 2024, it had no outstanding borrowings under its revolving credit facility, maintaining a borrowing capacity of $771 million. The company’s long-term debt was recorded at $2.615 billion.

Strategic Risks

Strategic risks arise from the decisions made by management regarding expansion and capital investments. The company has focused on optimizing its operations and enhancing customer experience, which involves capital expenditures of $204 million for the six months ended August 3, 2024. However, these investments must yield sufficient returns to justify the associated risks.

Mitigation Strategies

To address these risks, the company has implemented various strategies:

• Supply Chain Optimization: Continued investment in supply chain technology, including RFID, to improve inventory accuracy and reduce shrink.
• Cost Management: Focus on controlling SG&A expenses, which increased to $1.303 billion in the second quarter, to enhance profitability.
• Diverse Sales Channels: Strengthening digital sales, which accounted for 37% of total net sales in the second quarter of 2024, to capture market demand.

Financial Data Summary

Future Growth Prospects for Nordstrom, Inc. (JWN)

Future Growth Prospects for Nordstrom, Inc. (JWN)

Analysis of Key Growth Drivers

The company is focusing on several key growth drivers to enhance its market position. Notably, the emphasis is on digital-led growth supported by physical stores. For instance, digital sales as a percentage of total net sales reached 37% in the second quarter of 2024, compared to 36% in the same quarter of 2023.

Additionally, Nordstrom is expanding its Nordstrom Rack stores, which reported a net sales increase of 8.8% in Q2 2024 compared to Q2 2023. The company opened 5 new Rack stores in the second quarter of 2024, bringing the total new Rack store openings to 11 year-to-date.

Future Revenue Growth Projections and Earnings Estimates

For fiscal year 2024, the company projects total revenue growth to range from a 1.0% decline to a 1.0% increase compared to the previous fiscal year. The expected impact from the 53rd week of fiscal 2023 is approximately 135 basis points unfavorable.

Strategic Initiatives or Partnerships That May Drive Future Growth

Nordstrom is enhancing its operational efficiencies through the implementation of RFID technology across its locations. This initiative aims to improve product flow and reduce shrinkage while enhancing customer experience. Furthermore, the company is committed to offering a consistent selection of brands across its store fleet, which includes the relaunch of its private brands earlier in 2024.

Competitive Advantages That Position the Company for Growth

The company benefits from a strong customer loyalty program, with 75% of its Icon and Ambassador Nordy Club members participating in its Anniversary Sale, which is a significant driver of customer engagement. The focus on providing a seamless shopping experience across digital and physical platforms positions the company favorably against competitors.