Analyst Note| David Swartz |
On Feb. 4, narrow-moat Nordstrom updated its guidance and discussed its overall strategy as part of an analyst event. First, as reported in its holiday update on Jan. 13 (see our prior note), the firm confirmed an expected sales decline in the low-20% range and an operating margin drop of 500 basis points in the fourth quarter of 2020. In addition, for the first time, Nordstrom revealed 2021 guidance for revenue growth above 25%, positive operating income, and a year-end leverage ratio of about 3 times (the current ratio is not meaningful as 2020 EBITDA is expected to be negative). This outlook roughly aligns with our current view of 26.5% revenue growth, an operating margin of 3.7%, and year-end debt/EBITDA of 2.4 times, but we will re-evaluate our expectations after full 2020 results are reported on March 2. As with many peers, Nordstrom’s near-term outlook is cloudy due to the resurgence of the virus in some parts of North America. Even though e-commerce accounted for about half its sales in 2020, the retailer has a large physical store base and partial reliance on formal fashion, which has been underperforming during the pandemic.