5 Reasons Nordstrom Inc. Shareholders Should be Optimistic About the Future

Rough third quarter

• Nordstrom (NYSE: JWN) reported third quarter earnings on Nov. 12, 2015:– Sales increase of 6.6%– Comparable store sales up 0.9%– Net Income of $0.43 per share • Includes $0.17 per share of one-time expenses

related to sale of credit card portfolio• Represents 20% drop from same quarter last

year

Rough third quarter

• Shares in Nordstrom and its peers quickly sold off in the face of lackluster sales results:– Macy’s (NYSE: M) shares dropped following

disappointing same store sales results of (3.9%) on Nov. 11, 2015

– Despite strong comparable results, J.C. Penney was dragged down with the sector

But wait . . .

Despite these poor quarterly results, Nordstrom has a bright future.

#1: Investing in a connected world

• Nordstrom is fully aware that the retail landscape has changed drastically over the last 20 years– Investing in mobile purchase-and-pickup applications– Invested in three enormous fulfillment warehouses

• This has already born fruit:– Online sales were 8% of revenue in FY 2010– Projected to be 25% of revenue in FY 2020

• Goal is to provide the “richness of stores with convenience of online”

#2: Expanding customer base

• Nordstrom has been successfully expanding beyond traditional department stores

• Nordstrom Rack, its off-price chain initiative, continues to exceed expectations:– Has grown from 86 locations in FY 2010 to over 194 today– Expected to grow to over 300 locations by FY 2020

• Purchased personalized clothing online retailer “Trunk Club” – Integrating with the rest of Nordstrom’s offerings

#3: Canadian expansion

• Nordstrom currently has plans to break into Canadian market in a big way– $1 billion estimated sales potential– Calgar, Ottawa, and Vancouver flagship stores already open– Three stores planned for Toronto in the next year

• Early results are extremely positive– Stores already open in Canadian market experienced record-

setting openings

#4: Continuing a history of innovation

• Nordstrom building up strong fulfillment capabilities for online purchases

• Currently has three enormous facilities across U.S.– Cedar Rapids, IA for full-price order fulfillment– Elizabethtown, PA for full-price order fulfillment– San Bernadino, CA for off-price order fulfillment

• Offering free shipping and returns in order to engender customer use and loyalty

#4: Continuing a history of innovation

Source: Nordstrom Inc. Investor Presentation December 7, 2015

#5: A history of outperformance

• One quarter does not a company make• Nordstrom has a history of strong operating performance• Five-year average return on equity of 35%• Five-year average annual sales growth of 7.1%• Five-year average earnings per share growth of 6.2%

• Nordstrom projected to continue to grow at a decent clip through end of the decade• FY 2020 EPS estimate of $4.96 • Implies annualized earnings per share growth of 7.8% through the end of

the decade

Foolish Final Thoughts

• Disillusioned Nordstrom shareholders need not fear

• Long-term picture is solid• Nordstrom continues to invest in the future while

still operating an exceptional retail operation• Given current price-to-earnings of 13.4 times and

forward growth profile, the sky is definitely not falling

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