To The Moon

The fourth-quarter financial report of $Nordstrom(JWN)$ exceeded market expectations, and the stock price soared by more than 37%.

Nordstrom is a luxury department store, targeting middle and high-end consumers, expanding from selling shoes to clothing, video, jewelry, cosmetics, etc., and completing the transformation from single to multi-category department stores.

Like most retailers selling non-essential goods, Nordstrom's business has been hit hard by the long-term closure of stores during the pandemic lockdown,and declined for several years as more consumers turn to shopping online and major brands shift their marketing power from department stores to retail outlets.

Until the fourth quarter of 2021, boosted by the discount store Rack, the retailer's recovery speed was obviously accelerated, and the spending reduction made its profitability significantly improved.

Q4 revenue is 4.5 billion, a year-on-year increase of 23%, but revenue is still 1% lower than 2019Q4; The company's gross profit margin increased by 5 percentage points to 38%, partly due to the reduction of promotional activities; EBITDA grew nearly tenfold to $300 million.

The strong reaction of stock price is more likely to be due to the management's release of performance guidelines for fiscal year 2022, which are much higher than the consensus, especially the estimated EPS of 3.15-3.50 US dollars, an increase of 200% year-on-year, and the resumption of dividend distribution as early as the first quarter of this year.

Comparing several department stores horizontally, we can see that the recovery speed of Nordstrom is slower than that of its peers. For example, the revenue of Macy's Q4 is already 6% higher than that of the same period in 2019.

In fact, the epidemic crisis has forced Nordstrom to reconsider the role of its stores in the overall business and increase investment in Rack discount stores and e-commerce, but it still cannot make up for the decline of offline department stores.

And when the economy fully recovers, compared with Macy's, a popular department store,Nordstrom sells relatively higher-grade goods, which do not belong to the ranks of daily consumer goods, and there is also a lag effect in consumption patterns.

Nordstrom recovery really relies more on Rack discount stores, because inflation is being transmitted from the supply side to the consumer side. High inflation makes consumers need to find ways to save money. People have to change their shopping behavior for high prices, look for special products more frequently, and discount stores will make more profits.

Still, while luxury sales are struggling, there is a question mark over how far Nordstrom can go on the discount road.