Nordstrom’s Winning Formula: 3 Factors Behind the Stock’s Success

It’s a tale of two retail department stores on the opposite ends of the financial spectrum. Nordstrom Inc. (NYSE: JWN) stock is trading up 21% year-to-date (YTD), while Macy’s Inc. (NYSE: M) stock is trading down 22.6% YTD. These retail/wholesale sector giants are no strangers to each other. They're often found in the same shopping malls serving as anchor stores, drawing in foot traffic to the mall. While similar in many respects, their financial results say otherwise. Here are three things Nordstrom is doing better than Macy’s to explain the contrast in stock performance.

1) Nordstrom Is Growing Sales Better Than Macy’s

The market had opposite reactions to both company's second-quarter earnings releases. Macy's stock fell 12.9% following its Q2 2024 report. Macy's reported EPS of 53 cents, beating analyst estimates by 23 cents, but revenues slipped 3.8% YoY to $4.94 billion, which missed consensus estimates of $5.06 billion. Comparable sales fell 4% YoY. The company issued bearish Q3 guidance between a loss of 4 cents to a profit of a penny on revenues between $4.78 billion and $4.82 billion. The company cited that a more discerning consumer required more promotion activity. The company plans on closing 55 stores in 2024, up from 50 stores.

In contrast, Nordstrom's second-quarter 2024 report triggered a 4.24% rally in its stock. The company reported Q2 2024 EPS of 96 cents, beating consensus estimates by 25 cents. Unlike Macy's decline, Nordstrom saw revenue rise 3.2% YoY to $3.89 billion, beating consensus estimates of $3.88 billion. Opposite to Macy's, Nordstrom saw comparable sales rise 1.9% YoY. Strength was primarily attributed to activewear, women’s apparel, beauty, and kids. Nordstrom's Anniversary sales were also a strong contributor to the growth.

2) Nordstrom’s Followed the Off-Brand Retail Trend Better Than Macy’s

While Nordstrom had rising comparable sales of 1.9% versus Macy's falling comps of 4%, the majority of the comparable sales growth came from the 4.1% rise in comps for its off-brand Nordstrom Rack stores. Nordstrom Rack banner net sales rose 8.8% YoY. Nordstrom has over 345 Nordstrom Rack stores offering top brands sold at discounts up to 70% off. The company opened 11 Nordstrom Racks YTD, with 12 more openings planned for the second half of 2024. The company is going all-in on its off-brand strategy as Nordstrom Rack stores outnumber its namesake Nordstrom brand stores.

Off-Brand Retailers Are Thriving

Consumers are seeking more affordable fashion apparel. This is evidenced by the robust earnings reports from off-brand retailers like Ross Stores Inc. (NASDAQ: ROST), TJX Co. (NYSE: TJX), and Burlington Stores (NYSE: BURL). While Macy's has its off-brand stores with Macy's Backstage, they are not helping.

3) Nordstrom Is Managing Inventory Better Than Macy’s  

Nordstrom actually grew its inventory by 8.3% YoY. The reasoning is simple. They are selling more merchandise and are stocking up due to the robust sales attributed to Nordstrom Rack heading into the fall and holiday shopping season. Nordstrom’s gross margin rate improved 155 bps to 36.6% due to strong regular-price sales and more efficient inventory management.

Macy's inventories rose 6% YoY as it decided to invest in areas of strength for the second half of 2024. To its credit, Macy's improved gross margin by 240 bps to 40.5%, but it is not directly comparable to the prior year due to the conversion to cost accounting. Macy’s guidance reflects a “more discriminating consumer and heightened promotional environment relative to prior expectations.”

JWN Stock Is in an Ascending Triangle Pattern

An ascending triangle is comprised of flat-top upper trendline resistance and rising lower trendline support that meets at the apex point. As the stock approaches the apex point, it is expected to either break out through the upper trendline or break down below the lower trendline.

JWN stock continues to trade within the constricting range as it nears the apex point. The daily relative strength index (RSI) is coiled like a spring at the 54-band. Fibonacci pullback support levels are at $21.25, $19.48, $18.21 and $16.95.

Nordstrom's consensus price target is $19.85 and its highest analyst price target sits at $25.00.

Capitalizing on Pullbacks: Options Strategies for JWN Investors

JWN is trading above its consensus price target. Bullish investors may want to patiently wait for a pullback to the lowest three fib supports. Investors can collect some premiums using cash-secured puts to take positions on pullbacks at the fib support levels. To generate income, a wheel strategy can be implemented upon being assigned shares.

Source MarketBeat