Nordstrom Gave Cautious Outlook amid Uncertain Retail Environment
Capital investments in fiscal 2016
Nordstrom (JWN) considers fiscal 2015 as a peak investment year. The company has announced a reduction in its capital expenditure plans in response to a tough retail environment.
In fiscal 2015 ended January 30, 2016, the company’s gross capital expenditure was $1.1 billion, up 25.7% from fiscal 2014. The company expects its net capital expenditure in fiscal 2016 to be ~$0.9 billion. Net capital expenditure reflects gross capital expenditure net of deferred property incentives.
Nordstrom has made a capital expenditure of more than $3 billion over the last five years. This has helped the company in growing its top line by 50%, or ~$5 billion. Overall, the company has announced a five-year capital expenditure plan of $4 billion, or 5% of sales, over the 2016–2020 period. This represents a $300 million reduction in store investment over the next five years. The iShares Dow Jones US ETF (IYY) has 0.03% exposure to Nordstrom.
Investments in technology and supply chain
Nordstrom plans to allocate 31% of its planned capital expenditure for fiscal 2016 to technology and supply chain initiatives, which is flat compared to the previous year. Nordstrom and its peers Macy’s (M), Kohl’s (KSS), and JCPenney (JCP) have been making investments in technology to support the growth of their digital channels. These department stores continue to face intense competition from online retailers like Amazon (AMZN).
To ensure speedy delivery, Nordstrom opened its third fulfillment center in Elizabethtown, Pennsylvania, in 2015. According to Nordstrom, this delivery center is located within a two-day delivery of approximately half the US population.
Canada and Manhattan
Nordstrom (JWN) has allocated $300 million of its fiscal 2016 capital expenditure to its expansion in Canada and its flagship full-line store in Manhattan. At the end of fiscal 2015, the company had three full-line stores in Canada. The company plans to open two more full-line stores in Canada in fiscal 2016.
The company has allocated 18% of its planned capital expenditure in fiscal 2016 to new stores and relocations, as well as 20% to remodels and maintenance.
We’ll look at the company’s store growth plans in the next part of this series.
Browse this series on Market Realist: