Nordstrom: Business Continues To Benefit From The Macro Backdrop

Core Viewpoint - Nordstrom, Inc. (NYSE:JWN) is expected to benefit from a favorable macro environment, with a positive margin outlook and strong demand trends, despite a potential buyout offer that may not be accepted by the board [2][10]. Financial Performance - In 2Q24, JWN reported total retail sales growth of 3.4% year-over-year, resulting in revenue of $3.78 billion, which includes $109 million from credit card revenue, bringing total revenue to approximately $3.894 billion [3]. - Adjusted gross margin expanded by approximately 160 basis points from 35% in 2Q23 to 36.6% in 2Q24, contributing to an adjusted EBIT margin of 6.4%, a 140 basis point year-over-year increase [3][6]. Growth Outlook - The company is expected to continue benefiting from weak consumer spending, with Rack sales growing by 8.5% year-over-year and same-store sales increasing by 4.1% [4]. - JWN plans to open 12 additional Rack stores in the second half of 2024, following the opening of 5 stores in the previous quarter [4]. - The full-line business shows potential growth acceleration in 2H24, driven by strong sales in key brands and double-digit growth in beauty and active categories during anniversary sales [5]. Margin Outlook - The gross margin outlook is positive, with structural improvements expected to continue, driven by increased sales volume and reduced shrinkage as RFID investments are rolled out [6][7]. - The EBIT margin is projected to expand further in 2H24, with consensus estimates suggesting a target of approximately 3.7% [7]. Buyout Proposal and Valuation - JWN received a proposal for a going-private transaction at $23 per share, which equates to about 12 times FY25 P/E based on consensus estimates [8]. - The board is unlikely to accept this offer due to the lack of premium over the current share price, but it may establish a valuation floor [8]. - The stock could potentially trade up to approximately $23.80 based on FY26 EPS estimates, given the robust near-term demand outlook [8].