Narrow-Moat Nordstrom Retreats From Canada With a Focus on Profitability; Shares Very Undervalued

Narrow-moat Nordstrom’s 2022 fourth-quarter results were in line with our estimates (which had been lowered after its January update). However, the firm did deliver the surprising news that it will exit Canada, where it operates 13 stores (six full-line and seven Rack) and generates about 2.5% of its sales, within a few months. Nordstrom entered the nation in 2014 and had frequently highlighted Toronto as a key market but, likely due to a lack of scale and the pandemic, its operations were unprofitable. The firm expects one-time pretax charges of $300 million-$350 million due to closing costs and an investment write-down, but the move is expected to boost operating income by $35 million (or 7.5%) in 2023 relative to 2022.