Nordstrom (NYSE:JWN) is planning on making huge long term investments to help increase its sales. However, few of the analysts are still urging the investors to get their money out of the company. The earnings of Nordstrom (NYSE:JWN) have recently stopped growing. On the other hand, the stock of the company has increased by 30%.
As per Bears, management of Nordstrom (NYSE:JWN) has claimed that the earnings will remain the same throughout 2015, and this is one reason why the company might be selling its stocks. However, it must be kept in mind that today’s investments are expected to start generating profits with increased sales in the longer run with higher margins by the end of this decade.
As per its financial reports, the revenue of Nordstrom (NYSE:JWN) for the last quarter was $4.04 billion, which accounted for a 9% year to year increase. The analysts had expected revenues to be $4.01 billion. As for the EPS, Nordstrom (NYSE:JWN) missed the estimated figure only by a few pennies. Nordstrom (NYSE:JWN) has predicted a 7% to 9% increase in sales for 2015, with the EPS remaining the same. Furthermore, the company also intends to spend $400 million as capital.
Barclays’ PLC (NYSE:BCS) analysts have also made predictions which are along the same lines with the above mentioned estimates. The analysts further downgraded the stock of Nordstrom (NYSE:JWN) to Underweight, owing to a 10% decline in the stock over the year. Although Nordstrom (NYSE:JWN) is facing some challenges, but it is likely that these problems will be solved in average of five years. Once these challenges are over, the earnings of the company could increase, with positive effect on the company’s stock.
The first problem which Nordstrom (NYSE:JWN) is facing is entering in the Canadian market. The company opened its first outlet in September in Calgary, with the sales being more than expected. However, Nordstrom (NYSE:JWN) expects a loss of $60 million per year due to the initial opening costs.
Nordstrom Rack is the second problem. Nordstrom (NYSE:JWN) opens 25 Racks per year. With the initial costs along with lower profitability, the company has declined margins. These Racks are predicted to start generating good profits over some years.
Investing in technology is another problem which the company faces, which contributes towards 35% of the capital spending for coming 5 years. Although the decrease profits are in short term, in the long run, these are bound to help increase sales of Nordstrom (NYSE:JWN). Nordstrom (NYSE:JWN) acquired Trunk Clun, which is also a reason why the company has decreased earnings. This deal is expected to generate a loss of $30 million for the coming year.
However, the investors shouldn’t worry so much as the revenue of Nordstrom (NYSE:JWN) keeps growing at rate of more than 5%. The company faces all of the challenges because of these long term investments. Hence, it is expected that over the next half decade, the company will start generating profits.
If this is the case, then the investors should have some patience and hold their Nordstrom (NYSE:JWN) stocks.
