Nordstrom expects a reduction in debt burden

Management at Nordstrom (BB + / Baa3 / BBB-) expects the company's sales and EBITDA to start recovering this year. Online sales are expected to account for about 50% of total sales, up from 33% in 2019 and 55% in 2020, and will continue to put pressure on margins. But last year's revision of the company's cost structure should result in permanent annual savings of $ 300 million. Management expects the company to achieve $ 17 billion in revenue on an EBIT margin of over 6% over the next 3-5 years. Nordstrom's management also expects the company to reduce its debt burden to a target of 2.5x or even lower over the next 24 months.

We believe Nordstrom's yield curve will continue to trade at a discount to peers such as Kohl. As a result of the April revision, Fitch restored Nordstrom's ratings to investment grade. Thus, unsecured bonds with ratings corresponding to the issuer (BB + / Baa3 / BBB-) were included in the Bloomberg Barclays index, which supported the securities quotes. Negative rating outlooks from Moody's and Fitch are adding pressure to the investment grade status of Nordstrom, which poses certain risks for investors.

However, we believe Nordstrom's presence in premium shopping malls and a focus on fashionable clothing will support the issuer's credit profile as economic activity rebounds and builds up herd immunity domestically. Among Nordstrom Eurobonds, we single out the issue maturing in March 2028 (ISIN - US655664AH33). The bond has a duration of 5.5 years and offers a yield of 3.7%.

Service with a smile is a part of Nordstrom's corporate culture. One of the nation's largest upscale apparel and shoe retailers, Nordstrom sells clothes, shoes, and accessories through about 110 Nordstrom full-line stores and about 240 off-price outlet stores (Nordstrom Rack) in about 40 states and online. It also operates about 5 full-line and about 5 Rack stores in Canada, less than 5 Jeffrey luxury boutiques, about 5 Trunk Club personal clothing service clubhouses, roughly 5 Nordstrom Local hubs, a couple of "Last Chance" clearance stores, and online private sale site HauteLook. With its easy-return policy and touches such as thank-you notes from employees, Nordstrom has earned a reputation for top-notch customer service. Nordstrom family members, who own about 30% of the retailer's stock, closely supervise the chain.