Sterne Agee CRT Cuts Nordstrom's Price Target To $39 Following Another Big Miss

Nordstrom, Inc. JWN reported very weak results for 1Q16, while slashing its FY16 RPS guidance by 19 percent.

Renato Basanta of Sterne Agee CRT maintained a Neutral rating on the company, while lowering the price target from $49 to $39.

Heavy Investment Needed

“After another poor print, it’s becoming clearer to us that JWN's business is evolving, with each add'l SSS point costing more to generate. In reality, JWN’s progressive multi-channel model is managing to keep SSS from going deeply negative, but the necessary investment to sustain sales is heavy indeed,” Basanta explained.

The company cut is EPS guidance due to increased tech investments, as well as a tough promotional environment that is characterized by online price transparency and “intermediation” by brands, both of which are growing threats to Nordstrom, the analyst said.

1Q Missed On Most Metrics

Nordtrom reports its EPS for 1Q16 meaningfully below the estimate and the guidance, driven to a large extent by higher SG&A.

Sales rose 2.4 percent year on year to $3.19 billion, while total same store sales fell 1.7 percent, with all three key segments seeing comps that were significantly below the estimates.

The company reported its gross margins 19 bps below expectations, with a 162 bps year on year decline, driven by the promotional environment and Nordstrom’s initiatives to right size its inventory.

The analyst mentioned that “building on the success of its credit card loyalty program, JWN plans to launch its tender neutral loyalty program in 2Q.”