Seattle-based luxury department store chain Nordstrom said net sales declined nearly 22% in the nine-week holiday season as shoppers avoided department stores due a fresh spike in COVID-19 cases, sending its shares down about 3% in extended trading on Wednesday.
However, digital sales surge 23% over last year and represented 54% of total sales compared with 34% from the same period in fiscal 2019. The specialty retailer forecasts to deliver positive earnings before interest and taxes (EBIT) and operating cash flow for the fourth quarter.
“We expect the consensus 2020 EPS estimate to fall about 9% on today’s release (about -32c lost on the full year as the 46c Street 4Q estimate likely falls to about 14c as implied by y/y EBIT margin contraction). On the positive side, holiday-related headwinds that impacted the quarter likely abate going forward,” wrote Kimberly Greenberger, equity analyst at Morgan Stanley.
“We slightly lower our 4Qe EBIT margin estimate to be in-line with management’s -500 bps y/y forecast. More specifically, we marginally lower both 4Q gross margin and SG&A rate by 15 bps each due to the aforementioned headwinds, yielding -500 bps y/y EBIT margin (2.3% vs. 2.6% prior).”
Following this announcement, Nordstrom shares fell about 3% to $36.5 in extended trading on Wednesday; the stock plunged over 20% in 2020.
“Nordstrom will hold an analyst event on Feb. 4 and report its full earnings on March 2. We expect to update our model and analysis after these events, although we do not anticipate any significant changes to our long-term view or valuation. The firm is likely to report an EPS loss of more than $4.00 for 2020, but we forecast positive EPS in 2021 (our current expectation is $1.57),” said David Swartz, equity analyst at Morningstar.
“In the long term, we forecast revenue growth and operating margins of about 2% and 5%, respectively. We view Nordstrom as fully valued as its shares trade at a slight premium to our per share fair value estimate of $33.50.”
Nordstrom Stock Price Forecast
Eleven analysts who offered stock ratings for Nordstrom (JWN) in the last three months forecast the average price in 12 months at $24.00 with a high forecast of $35.00 and a low forecast of $11.00. The average price target represents a -36.14% decrease from the last price of $37.58. From those 11 analysts, two rated “Buy”, seven rated “Hold” and two rated “Sell”, according to Tipranks.
Morgan Stanley gave a base target price of $19 with a high of $35 under a bull scenario and $10 under the worst-case scenario. The firm currently has an “Equal-weight” rating on the specialty retailer’s stock.
Several other analysts have also recently commented on the stock. Credit Suisse raised the target price to $39 from $26. Keybanc upped the price objective to $42 from $35. Wedbush increased the stock price forecast to $35 from $17. In November, Nordstrom had its target price lifted by Telsey Advisory Group to $28 from $24. Zacks Investment Research upgraded Nordstrom from a sell rating to a hold rating and set a $17 price target.
“Secular Challenges Eclipse Nordstrom’s (JWN) Strengths: JWN’s standout service, competitive pricing, coveted product, and seamless multichannel shopping experience differentiate JWN from department store peers and should stay relevant L-T, especially as high-end consumers kick start spending again,” Morgan Stanley’s Greenberger added.
“However, department store margins appear in secular decline, largely driven by channel shift to lower margin eCommerce sales, and JWN is not immune. Although we think JWN can remain highly relevant, its future earnings growth rate appears limited.”
Upside and Downside Risks
Risks to Upside: 1) Strength at the high end causes a meaningful rebound in-store comps and eComm. 2) EBIT margins stabilize after multi-year declines. 3) Capital spending on IT/Tech decelerates, potentially allowing JWN to drive expense leverage on a 1-2% comp. 4) Rack.com proves resilient– highlighted by Morgan Stanley.
Risks to Downside: 1) 2020 COVID-19/recession impact more severe than anticipated. 2) CECL has a greater impact than forecasted to credit revenue.
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