Premium retail department store chain Nordstrom (NYSE:JWN) was crippled on its Q3 2021 results and forward guidance ahead of the holiday shopping season. Nordstrom Rack has been the weak spot for the retailer as it continued to face inventory issues due to supply-chain constraints. The company expects macro-related supply-chain disruptions to continue into 2022 and is increasing its pack-and-hold inventory by two to three times in preparation.
The sell-off in the shares was not triggered by missing analyst bottom-line estimates but by the belief that its Q4 2021 holiday shopping season will flop. This sets the bar low heading into year-end tax-loss selling. Prudent investors can look for opportunistic pullbacks in shares of Nordstrom to gain exposure at discounted levels on overly bearish sentiment.
Q3 FY fiscal 2021 Earnings Release
On Nov. 23, 2021, Nordstrom released its third-quarter fiscal 2021 results for the quarter ending October 2021. The company reported earnings-per-share (EPS) of $0.39 excluding non-recurring items versus consensus analyst estimates for a profit of $0.56, a surprising (-$0.17) per share miss. Revenues rose 17.7% year-over-year (YoY) to $3.64 billion, beating consensus analyst estimates for $3.54 billion. Nordstrom brand net sales rose 11% YoY. Nordstrom Rack sales rose 35% YoY. Digital sales decreased (-12%) YoY. The company expect fiscal full-year 2021 revenues to grow by 35% compared to fiscal 2020 and reaffirms EBIT margin of 3.0$ to 3.5%.
Nordstrom CEO Erik Nordstrom stated:
"We have long benefited from a commitment to customer service, new and compelling merchandise, innovative brand partnerships and interconnected digital and physical assets. However, we need to move faster to capitalize on these strengths and profitably grow market share. We're taking action to improve performance at Nordstrom Rack, including optimizing inventory levels, better balancing price points and increasing brand awareness. Work is also underway to improve merchandise margin across the company and ensure we have the visibility and flexibility we need to serve our customers seamlessly, despite global supply chain challenges. In the third quarter, we made continued progress toward our strategic and financial goals, driven by strong digital growth, the integrated capabilities enabled by our market strategy and increased net sales in our Nordstrom banner stores, but we are focused on accelerating our transformation and improving results."
Conference Call Takeaways
CEO Nordstrom set the tone:
"Nordstrom Rack has been challenged by low inventory levels in premium brands in key categories such as women's apparel and shoes. Customers are drawn to Nordstrom Rack to purchase premium brands at a terrific price. In fact, 90% of the top brands at Nordstrom are also sold at the Rack. These brands are more highly penetrated in our Rack business than they are at other off-price retailers. While many retailers are dealing with macro-related supply chain disruptions, Rack faces a unique challenge as off-price procurement of the same top brands we carry at Nordstrom is particularly difficult in an environment with production constraints and lower levels of clearance product. Rack's top 50 brands represented approximately 50% of sales in 2019. Year-to-date, these brands represented only 42% of sales, highlighting the outsized gap in the merchandise availability. In response, we are undertaking a comprehensive set of actions to increase our inventory levels and improve merchandise flow for the Rack. In particular, we are executing a multilayered plan to both grow our offer of the most coveted brands we carry as well as source from new vendors to ensure we have the selection our customers want. To minimize supply gaps, we are increasing our opportunistic use of pack and hold inventory, allowing us to buy larger quantities of relevant items when available, then hold a portion of it to deploy in periods with high demand, tight supply, or system constraints. Given that we expect macro-related supply chain disruptions to continue into next year, we're strategically evaluating our assortment and increasing our use of pack and hold inventory by a factor of two times to three times. We expect that action in these areas will not only yield benefits as we deal with macro-related supply chain disruptions, but also deliver sustainable benefits that will enhance our long-term performance as well. While we are in the early days of these efforts, preliminary results show sales responding positively in Rack stores with improving inventory positions.”
JWN Opportunistic Pullback Price Levels
Using the rifle charts on the weekly and daily timeframes provides a precision view of the landscape for JWN stock. The weekly rifle chart collapsed on earnings to the $19.86 Fibonacci (fib) level. The weekly rifle chart formed a sharp breakdown as the 5-period moving average (MA) resistance is still trying to catch down at $25.95 followed by the 15-period MA at $27.56. The weekly lower Bollinger Bands (BBs) sit at $17.30. The daily rifle chart is in a make or break with a flat 5-period MA at $21.05 followed by the 15-period MA at $23.45 as the daily stochastic attempts a mini pup. The daily market structure low (MSL) buy triggers on a breakout above $21.11.
Prudent investors can watch for opportunistic pullback levels at the $19.86 fib, $18.12 fib, $16.90 fib, $15.68 fib, and the $13.94 fib level. Upside trajectories range from the $26.48 fib up towards the $35.24 fib level.