Nordstrom Issues Weak Holiday Sales Report: The Sell-Side Reacts

High-end fashion retailer Nordstrom, Inc. JWN cautioned investors Wednesday that sales at its flagship stores fell "below expectations" during the holiday season, necessitating increased promotions to work through excess inventory. 

The Analysts

UBS' Jay Sole maintains a Buy rating on Nordstrom with an unchanged $66 price target.

Bank of America Merrill Lynch's Lorraine Hutchinson maintains at Underperform rating with a price target lowered from $48 to $43.

KeyBanc Capital Markets' Edward Yruma maintains at Sector Weight.

UBS: More Info Needed 

Nordstrom said in a press release that full-price flagship Nordstrom store comps rose just 0.3 percent during the holiday season versus UBS' expectations of 0.7-percent growth, Sole said in a Wednesday note.

The main question investors are now asking is why sales fell short of expectations, and after speaking with management, the analyst said it's apparent the usual suspects like weather, tourism, fashion, and operation execution "were probably not issues."

If Nordstrom's woes are a result of consumers opting to shop online instead of in-store, it may warrant a shift in attitude toward the stock, Sole said. A bullish stance is hinged on the belief that Nordstrom's stores "serve a useful purpose" in the future of retail, he said.

UBS' proprietary research found consumer spending at the retailer throughout December was "relatively weak," and it could have been a result of stock market volatility, the analyst said.

More data is needed before taking any action on Nordstrom's stock, in UBS' view. 

Related Link: Wedbush Upgrades Nordstrom, Says 2018 An 'Inflection Point For Profitable Growth'

BofA: Minimal Opportunity For EBIT Margin Growth

Nordstrom disappointed investors with its holiday day sales announcement and reinforced a view that the company has minimal opportunity for EBIT margin growth, Hutchinson said in a Tuesday note. The research firm's revised $43 price target is based on five times 2019 estimated EV/EBITDA, which marks a revision from a prior 5.5 times multiple to better reflect a "more muted growth outlook and further margin risk," the analyst said. 

KeyBanc: Was This Foreshadowed?

Nordstrom customers were greeted with an "unusual promotion" in which the company offered a $50 gift card on purchases of $250 during Cyber Monday, Yruma said in a Tuesday note.

The retailer followed up with a second promotion in December consisting of a $50 gift card bonus to consumers who buy $300 in e-gift cards.

Both of these "highly atypical" promotions "provided a bit of a heads-up" that trends were falling short of management's expectations, the analyst said. 

Beyond the current quarter, Nordstrom appears to be at the end stages of "generational investments" across its entire business, Yruma said. While this could provide an opportunity for margin expansion over time, investors should expect limited earnings upside in the near-term, he said. 

Price Action

Nordstrom hit a new 52-week low of $43.04 Wednesday and was trading down 6.31 percent at $44.28 at the time of publication Wednesday. 

Related Link: Analysts Take Rain Check On Nordstrom After 'Eh' Q3 Report

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