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Nordstrom Rack Stores Continue to Post Impressive Growth in 2Q15

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Twenty-sixth consecutive quarter of double-digit growth

Nordstrom’s (JWN) second-quarter results, reported on August 13, revealed continued strength in sales at the company’s off-price Rack stores. In 2Q15, sales at Nordstrom Rack increased by 12.9% to $857 million. This marks the twenty-sixth consecutive quarter of double-digit growth in Rack store sales.

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Key growth driver

In 2Q15, Nordstrom’s Rack stores accounted for 23.8% of net sales, versus 23% in the comparable quarter of the previous year. Nordstrom’s off-price Rack stores have been a key growth driver for the company in recent years. The strong growth in the company’s Rack store sales compared to the full-line stores reflects consumers’ penchant for bargain deals available in off-price stores.

Nordstrom Rack is the biggest source of the company’s new customers. In fiscal 2014, Nordstrom Rack stores attracted ~4 million new customers. As of the end of 2Q15, the number of Nordstrom Rack stores came in at 178. These stores outnumber the 116 full-line Nordstrom stores in the United States.

Store plans

In 1H15, the company opened 11 Nordstrom Rack stores compared to two full-line stores. In 3Q15, the company plans to open 16 Nordstrom Rack stores. The new store locations include Albany, Anchorage, Buffalo, Clearwater, Mount Pleasant, Baton Rouge, Newark, Emeryville, Fort Collins, four stores in California, and three stores in New Jersey.

Nordstrom plans to end the year with a total of 194 Rack stores. The company also has international plans for its Rack concept and plans to open Rack stores in Canada in the fall of 2017.

Rivals in the off-price space

Nordstrom’s key rivals in the off-price space include TJX Companies (TJX) and Ross Stores (ROST). In 2Q15, TJX Companies opened 20 new stores, ending the quarter with 3,461 stores across the United States, Europe, and Canada. Ross Stores operates Ross Dress for Less off-price stores with 1,260 locations in the United States. The company plans to open 70 more Ross Dress for Less stores in 2015. Macy’s (M) is now geared up to pilot Macy’s Backstage off-price stores.

Nordstrom, along with TJX Companies, Ross Stores, and Macy’s, constitutes 4.4% of the portfolio holdings in the SPDR S&P Retail ETF (XRT) and 0.9% of the iShares Russell 1000 Growth ETF (IWF).

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