Here's How To Play Nordstrom's (NYSE: JWN) Earnings

For retail companies, this season’s earnings report was always going to be the major bellwether on which Wall Street will form its opinion on the stock for the coming year. COVID has been around long enough for companies' responses to be judged fairly and it’s starting to become obvious which ones have worked and which haven’t.

With Black Friday due the day after tomorrow and what has been traditionally the busiest time of the year about to begin, retail stocks are about to get their best chance of the year to finish strong. Shares of Nordstrom (NYSE: JWN), the $3 billion department store chain, have been putting their best foot forward for a few weeks now. After a quiet summer and a meek autumn where they actually set fresh 52 week lows, there’s been a recent bid evident in the stock that has sent it up more than 100% this month alone.

Along with the likes of airlines and hotel stocks, retailers (particularly the traditional brick and mortar kind) were always going to catch some of that fresh goodwill that poured into equities on the back of the recent COVID vaccine announcement. Nordstrom has been only too happy to ride the positivity that’s sweeping back into beat down names, many of who had to watch on enviously from the sidelines as what must have felt like everybody else shot to all time highs this past summer.

Operating Profitability

But the company’s Q3 numbers were always going to be the moment of truth and the catalyst from which must of their shares’ performance through the rest of the year will be fuelled. And with that in mind, the numbers were solid. Analysts had been expecting EPS of $0.05 but the print came in almost seven times that at $0.34. This more than made up for a small miss in revenue which ‘only’ contracted 15% on the year.

Considering August’s Q2 numbers had revenue falling more than 50% compared to the same period in 2019, things are clearly on the up and up at Nordstrom HQ. Aside from achieving operating profitability, a key metric that will keep the bulls happy was the company’s online sales number, which at $1.6 billion represented 54% of the total revenue.

As mentioned above, this earnings season will separate the men from the boys and make it clear to Wall Street who out of the traditional retailers has been able to make the most out of COVID by pivoting to online sales. Based on the stock’s post-earnings jump, it’s looking clear which camp Nordstrom will be in. The report was enough to send their shares up almost 8% in after-hours trading, this on a day where they’d finished up nearly 5% in normal hours beforehand.

They’re on track to open Wednesday’s session at their highest levels since the dark days of March, and while there’s still a while to go yet before they’ll undo all the damage that COVID wrough, it’s looking likely that that will be the next informal target for investors.

Exciting End To The Year

As CEO Erik Nordstrom summed up; “our ability to significantly strengthen our financial flexibility early in the pandemic was key to delivering operating profitability of more than $100 million and cash flow of more than $150 million in the third quarter. We also unlocked new ways to better serve customers on their terms with greater convenience and connection, including an expansion of our online order pickup services to nearly 350 locations across both Nordstrom and Nordstrom Racks.”

For investors wondering how to play Nordstrom in the aftermath of yesterday’s numbers, all signs are pointing to December being a doozy of a month. Shares were hot coming into last night’s report and were sizzling afterward. With momentum from the COVID vaccine news likely to stick around well into 2021, the recovery potential in stocks like Nordstrom, who are bloodied but still standing, becomes immense.