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Bear of the Day: Nordstrom, Inc. (JWN)

Benjamin Rains

Nordstrom, Inc. (JWN) stock has tumbled 30% in 2019. This stands in stark contrast to the S&P 500’s roughly 10% comeback, but is part of an increasingly worrisome trend among department store chains that struggle for relevance in the quickly changing retail landscape.

Overview & Recent Performance

Nordstrom, Macy’s (M), Kohl’s (KSS), JC Penney (JCP), and other more traditional department store-style retailers have found it harder to adapt to the e-commerce and delivery age. JWN and others have revamped their businesses to accommodate shoppers that have come to expect quick delivery and smooth, easy to use e-commerce platforms in the Amazon (AMZN) age.

Wall Street and investors have, however, noticed that companies like Nike (NKE) and Ralph Lauren (RL) have focused on direct-to-consumer expansion and big-box retailers such as Target (TGT) have successfully attracted shoppers who might have been Nordstrom and Macy’s customers in years gone by. Nordstrom has purchased Stitch Fix (SFIX) competitor Trunk Club and member-only shopping website HauteLook and focused on its off-priced Nordstrom Rack stores in order to better compete.

Nordstrom’s first quarter fiscal 2019 revenue slipped 3.3% from the prior-year quarter and missed our Zacks Consensus Estimate. More specifically, the top line was hurt by the company’s loyalty program, digital marketing, and merchandise, which led to downturns across JWN’s full-price and off-price businesses. Worse yet, the firm’s adjusted Q1 earnings plummeted roughly 55% to fall well short of estimates.

Shares of JWN have fallen roughly 14% since the company reported its Q1 2019 financial results on May 21. This recent downturn has pushed Nordstrom stock down 31% this year. Investors will notice that the company’s recent performance is part of a much larger five-year downturn.

 

 

Outlook & Earnings Trends

Management lowered JWN’s guidance for fiscal 2019 following Nordstrom’s brutal Q1 showing. Looking ahead, the company’s current-quarter revenue is projected to dip 3% to $3.94 billion, based on our current Zacks Consensus Estimate. Nordstrom’s full-year revenue is expected to sink 1.75% to $15.58 billion. Peeking further down the road, the company’s 2020 revenue is projected to jump 1.3% above our fiscal 2019 estimate. But this would still see revenue come in below 2018’s total.

At the bottom end of the income statement, the firm’s adjusted Q2 2019 earnings are projected to fall nearly 16% to touch $0.80 per share. On top of that, the company’s current full-year EPS figure is expected to slip 5.6%. Plus, Nordstrom has experienced a ton of downward earnings estimate revisions recently, especially for fiscal 2019 and 2020.

 


 

 

Bottom Line

Nordstrom’s negative earnings estimate revision activity helps it earn a Zacks Rank #5 (Strong Sell) at the moment. The company also sports a “D” grade for Growth in our Style Scores system.

It is worth noting that JWN stock presents solid value at the moment, with an industry-beating price/sales ratio of 0.32, against 0.45. The company is also a dividend payer. Yet, Nordstrom stock might be one to stay away from as it fails to impress investors and Wall Street with its growth initiatives.

Investors still interested in the Retail - Apparel and Shoes industry might instead consider Children's Place, Inc. (PLCE), Buckle, Inc. (BKE), and L Brands, Inc. (LB), which are all Zacks Rank #2 (Buy) or #1 (Strong Buy) stocks at the moment.

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