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

Core Viewpoint - Nordstrom Inc. is outperforming Macy's Inc. in terms of stock performance and financial results, with Nordstrom's stock up 21% year-to-date while Macy's is down 22.6% YTD [1] Group 1: Sales Performance - Nordstrom's Q2 2024 EPS was 96 cents, beating estimates by 25 cents, with revenue rising 3.2% YoY to $3.89 billion, surpassing consensus estimates of $3.88 billion [3] - In contrast, Macy's reported Q2 2024 EPS of 53 cents, beating estimates by 23 cents, but revenues fell 3.8% YoY to $4.94 billion, missing consensus estimates of $5.06 billion [2] Group 2: Comparable Sales - Nordstrom experienced a 1.9% YoY increase in comparable sales, while Macy's saw a 4% YoY decline [4] - The growth in Nordstrom's comparable sales was largely driven by a 4.1% increase in its off-brand Nordstrom Rack stores, which saw net sales rise 8.8% YoY [4] Group 3: Inventory Management - Nordstrom's inventory grew by 8.3% YoY, reflecting strong sales and effective inventory management, leading to a gross margin rate improvement of 155 basis points to 36.6% [5] - Macy's inventory rose 6% YoY, with a gross margin improvement of 240 basis points to 40.5%, but this was not directly comparable to the prior year due to accounting changes [6] Group 4: Market Trends - The off-brand retail trend is benefiting Nordstrom, as consumers increasingly seek affordable fashion, contrasting with Macy's less effective off-brand strategy [5] - Nordstrom has opened 11 Nordstrom Rack stores year-to-date, with plans for 12 more openings in the second half of 2024, indicating a strong commitment to its off-brand strategy [4] Group 5: Stock Performance and Analyst Ratings - Nordstrom's stock is currently trading above its consensus price target of $19.85, with the highest analyst price target at $25.00 [7] - Despite its strong performance, Nordstrom currently holds a "Reduce" rating among analysts, who suggest other stocks may be better buys [9]