JP Morgan: No 'Silver Bullets' For Nordstrom Sales

Nordstrom, Inc’s JWN business in Q4 seems to be a continuation of the flattish year-to-date trends and the profile for FY 2017 appears to be under pressure, JPMorgan’s Matthew R. Boss said in a report. He downgraded the rating on the company from Neutral to Underweight, while reducing the price target from $55 to $48.

Nordstrom’s shares have appreciated 57 percent over the past six months, versus a 13 percent gain in the SPX. Following meetings with management, Boss commented on Nordstrom’s outlook.

Near-Term Prospects

The company’s Q4 business continues the flattish year-to-date trends, with ecommerce and Rack business tracking ahead of the full-line brick and mortar business. Management indicated no pickup in brick and mortar after the stepdown across all categories in August 2015.

FY 2017 Prospects

Management “sees no silver bullets in the barrel” looking ahead at FY 2017, with forward receipts being planned to the current flattish top-line trend, which is lower than the Street expectation of 1.6 percent same-store sales, Boss mentioned.

The shift from brick and mortar to ecommerce would continue, while the costs to drive customer traffic would accelerate.

No Multi-Year Silver Bullets

“JWN’s top-line profile has moderated to low-to-mid single digits with mgmt citing tighter expense control as a near-term fix rather than long term model solution clarifying its mid-teens ROIC target as more an “aspiration” rather than near-term reality,” the analyst wrote.

The EPS estimate for FY18 has been reduced to $3.00, which is lower than the Street expectation of $3.27, and reflects flattish same-store sales over the next couple of years and modest SG&A deleverage, being partially offset by some GPM expansion.