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People walk by the newly opened Nordstrom menÕs store, the companyÕs first-ever Manhattan location in midtown at 57th and Broadway on April 12, 2018 in New York City.
Nordstrom on Tuesday laid out its five-year financial targets, as it sets its sights on becoming what it describes as the "best fashion retailer in a digital world."
From 2017 to 2022, Nordstrom said it expects earnings before interest and taxes to grow 5 to 6 percent on an average annualized basis, while sales will rise between 3 and 4 percent on the same basis. During that time, however, apparel and footwear sales are projected to grow at a slower 1-percent pace on average, annually.
The new targets are being laid out as Nordstrom meets with investors in Los Angeles this week. Earlier this year, the Nordstrom family failed in its attempt to take the department store chain private, as it was unable to get the financing it needed to get the deal done.
Nordstrom, like its rivals, is fighting to maintain growth as it faces new competition from trendy e-commerce brands and slowing foot traffic at malls. In order to keep pace, traditional retailers must invest in new technology and test out new business models.
Nordstrom has been taking these steps and will continue amid mounting pressures. While the retailer has usually been considered best in class when compared with its mall-based peers, sales at its off-price Nordstrom Rack division have weakened and Amazon is encroaching further into fashion.
Last year, Nordstrom's net sales rose 4.4 percent, better than an increase of 2.9 percent in fiscal 2016. But growth has clearly tapered from earlier years, like when net sales skyrocketed 7.8 percent higher in fiscal 2014.
For 2018, Nordstrom also on Tuesday reaffirmed its prior outlook. It had said it expects net sales to fall within a range of $15.2 billion to $15.4 billion, while same-store sales are forecast to rise as much as 1.5 percent overall. Earnings per share are expected to fall within a range of $3.35 to $3.55, excluding the impact of any future share repurchases.
Wall Street was looking for more, though.
Nordstrom reported net sales of $15.1 billion in fiscal 2017, and so with sales as high as $15.4 billion as the company has projected this year that would be an increase of just 2 percent. Analysts surveyed by Thomson Reuters were expecting revenues to be as much as $16.01 billion, while earnings per share were forecast by the Street to fall within a range of $3.37 and $3.61 in fiscal 2018.
Looking to fiscal 2019, analysts surveyed by Thomson Reuters had projected revenues to fall within a range of $15.87 billion and $16.57 billion.
Ahead of the press release issued Tuesday outlining Nordstrom's financial targets, Key Banc downgraded shares of Nordstrom to sector weight from overweight.
"We remain impressed by JWN’s openness to reinventing itself — fortuitous investments in e-comm and Rack have given the retailer a fairly unique level of stability," analyst Ed Yruma said. "However, initiatives like pop-ups, product exclusives, and remodels have been unable to counter the natural traffic migration to ecomm at the full-line stores."
Nordstrom shares were falling about 3 percent in early trading on all the news.
Laying out its five-year plan, Nordstrom also said Tuesday it expects free cash flow will increase from $600 million in 2017 to roughly $800 million by 2020 and $1 billion by 2022 as its investments mature. Adjusted return on invested capital is forecast to grow from 9.7 percent last year to a mid-teens range within the next half decade.
All that said, Nordstrom is still trying to strike a balance between its investments and profitability.
The company's agenda in Los Angeles Tuesday includes discussions about its plans to expand to new markets — like Canada with Nordstrom Rack and to open additional Nordstrom Local stores, which were announced Monday. The smaller-format stores are focused on offering services, like manicures and pedicures, instead of sending shoppers home with their hands full of bags. Nordstrom is planning to open more of these in Los Angeles and New York, to start.
Scheduled to speak to the financial community Tuesday are Nordstrom Co-presidents Blake, Pete and Erik Nordstrom, Chief Financial Officer Anne Bramman, and Chief Digital Officer and President of Nordstrom.com Ken Worzel.
Nordstrom shares have climbed roughly 13 percent over the past year, and the company has a market capitalization of roughly $9 billion. That compares with Macy's, which has a market value of $11.2 billion, and J.C. Penney, which is valued at $754.3 million.
