The apparel segment has been trying to recover over the past few months as economies continue to reopen. According to the Commerce Department, the clothing and accessories sales grew 0.8% month over month in April. Moreover, the jump was a much solid 11.2% on a YOY basis. Thus, the sector seems to be making a speedy recovery from the woes of the pandemic.
The pandemic had people confined to their homes, which ultimately led to a huge decline in their spending on clothes and related items. Hence, the apparel industry took a severe hit from the Covid outbreak. However, the beginning of 2021 brought relief as economies started reopening. But the omicron and delta variants continued giving blows. Finally, near the end of last year, things started improving for the industry and it has been making a speedy recovery since then. With offices and schools now functioning at optimum levels, people are now spending more on clothes and shoes as they upgrade their wardrobes. Summer and vacation plans are also helping boost demand in the sector.
But challenges remain at large with inflation and rising interest rate on top of the wider economic downfall. The Fed has already hiked rates by 75 basis points in the last two meetings, with more hikes on the way. Inflation has crossed the highest levels in 41 years of the country. The cherry on top. A recession is looming overhead. However, despite the numerous challenges, the apparel segment is on track to make a recovery. Helping the segment is the increase in personal income and expenditure. More cash on hand will likely boost spending in the future which in turn will aid the apparel business.
JWN; The Retail Victor
In the recent weeks, many retail companies posted earnings that disappointed immensely. After a horrible slate of financial reports from retail stocks, many were fearful of JWN’s earnings. There were even reports of dumping the stock or staying away from it as its earnings date came closer. But the high-end apparel retailer posted earnings that blew in the face of most of its industry peers.
With its upbeat earnings and outlook, JWN stock added nearly 9.5% in the pre-market on May 25. A volume of 5,609 shares had the stock reach $22.63 in the pre-market following a decline of 3.59% in the prior session. Investors’ fears over the earnings had the stock valued at $20.68 at the close of the regular trading session.
Q1, 2022 Financial Results
For the first quarter of 2022, the company posted net sales of $3.57 billion while analysts were expecting $3.28 billion. The net sale grew by 18.7% and the Nordstrom banner store sales jumped by 23.5%, exceeding the pre-pandemic levels. The Nordstrom Rack saw an increase of 10.3% in its sales and is marking a consistent sequential improvement towards its pre-pandemic levels. With digital sales remaining flat YOY, shoppers’ appetite for going out and visiting stores seems strong.
Furthermore, the gross merchandise value (GMV) went up 19.6% in the quarter while the Nordstrom banner GMV went up by 24.8%. The gross profit saw an increase of 190 basis points YOY.
While the quarterly net earnings were modest at $20 million, the adjusted EPS of $(0.06) came well above the expected $(0.08). The earnings per share represent a surprise of 25%. Moreover, the quarterly EPS was impacted by discrete tax expenses in relation to stock-based compensation.
Additionally, the company’s board has also authorized a new $500 million buyback plan.
For the ongoing fiscal 2022, the company’s updated guidance is mentioned in the table below:
Analysts are expecting earnings of $0.84 on sales of $3.98 billion for the second quarter. And the full-year expectations are EPS of $3.30 on sales of $15.55 billion.
In a battle to deal with the rising costs due to inflation and supply chain hurdles, the company has upped its prices and so far, demand has held strong.
JWN Stock Analysis
Currently, JWN stock maintains a “Buy” rating from most analysts as its fundamentals remain strong and outlook bullish. Sporting a Value grade of A, the stock has a P/E ratio of 6.86 which is slightly below the industry average of 8.82. Its price-to-sales ratio of 0.23 also remains a little below the industry average while the P/CP ratio is 3.80. Its valuations demonstrate that the stock is likely undervalued at the moment and hence is a good value stock.
With its strong valuations, the apparel retailer had a price target of $22 from JP Morgan prior to the company’s earnings. Additionally, the stock has so far been doing relatively better than its industry peers. JWN has returned 8.58% year to date while its peers have lost over 10%. However, the frenzy over the retail earnings season had the stock lose over 16% in the past five days alone, making it underperform the market.
Despite the huge array of challenges brought forth by geopolitical and economic instability, the retail market is continuing its bullish trend. While rising inflation, surging interest rates, and a looming recession pose huge risks, reopening of economies and increased personal income plus expenditure are expected to boost demand.
JWN has also been reeling under higher Covid-related labor and freight costs amid the global supply chain bottlenecks. However, remaining firm on its growth strategy, the company has dealt well with the rising costs and has increased its prices. The increased prices have not impacted its demand in any way as the latest earnings release showed strong sales growth. Continuing its path to recovery, the company provided a bullish outlook for the year as well as the ongoing quarter.