Why Nordstrom’s Business Is Worrying Some Analysts

Amid a supposed retail apocalypse — marked by a wave of retail bankruptcies that started around 2017 — Nordstrom Inc. has been the shining star in the struggling department store sector.

But one analyst this week caused waves when he suggested the Seattle-based retailer’s competitive positioning is weakening.

“Nordstrom has traditionally been a main destination for business and special occasion (e.g. weddings) attire,” UBS analyst Jay Sole wrote Tuesday. “However, consumers decreasingly say they go to Nordstrom for these items and are increasingly likely to go to discount retailers for them instead.”

Sole said the investment firm’s recent data analysis of several metrics related to the department store indicated “erosion” of this “important” aspect of its strategic advantage.

“Plus, the data also shows no retailer, among the ones we surveyed, had a bigger year over year drop in price perception, other than Gap and JC Penney,” he added, paring his price target for Nordstrom’s stock in half, from $65 to $33, and downgrading it from “buy” to “neutral.”

Sole further dubbed the department store a “no-growth retailer.”

His cautious stance follows a recent downgrade of Nordstrom’s stock — less than a week ago — by Goldman Sachs, which switched its rating from “neutral” to “sell” on tariff uncertainties as well as company-specific challenges.

“Following two [earnings] releases in which full-price comps have disappointed versus our expectations, we have fading confidence in the outlook for the core department store business, and see choppy gross margins as likely offsetting good news on costs as the company cycles generational investments,” said Goldman analyst Alexandra Walvis, who reduced her price target on Nordstrom’s stock, from $50 to $33.

Despite some unevenness in its business over the past two years — mostly the result of investor-approved higher SG&A costs stemming from planned business investments — as well as failed go-private effort in 2018, Nordstrom had remained a Wall Street darling lauded for its pioneering retail concepts amid wider industry disruption. The firm had been among the first in its space to test and launch omnichannel savvy concepts like buy online pick up in store (BOPIS) as well as debut smaller, more personalized and experiential stores i.e. Nordstrom Local.

However, its most recent earnings results have disappointed investors with its Q1 report in May sending shares down 11% — after it significantly missed Wall Street’s bets. The company posted adjusted profits of 23 cents per share on revenues of $3.44 billion while market watchers had projected 43 cents a share on sales of $3.57 billion. Its comparable sales also tumbled 3.5% percent, which was worse than the 0.1% dip Wall Street anticipated. Nordstrom had joined J. C. Penney Co. Inc. and Kohl’s Inc. in delivering disappointing results to kick off the fiscal year.

Still, not all analysts are down on the Seattle-based company, which made its Manhattan debut last year, Cowen & Co. rates the stock a “market perform,” with analyst Oliver Chen writing in April “inventory freshness and differentiation, speed and service, human interaction, pre-and post-purchase services, and a differentiated local market strategy are essential to [Nordstrom] gaining share and loyalty which will manifest in improved comp momentum.”

As of 3 p.m. ET, Nordstrom shares were in the green 2.6% to $32.05.

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