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Nordstrom downgraded to sell, price target reiterated on Q1 performance

EditorNatashya Angelica
Published 2024/05/31, 21:42

On Friday, CFRA downgraded shares of Nordstrom (NYSE:JWN), moving the rating from Hold to Sell and maintaining a price target of $16.00. The firm cited several factors behind the downgrade, including the company's first-quarter earnings performance and challenges in improving margins.

Nordstrom reported a first-quarter normalized earnings per share (EPS) of -$0.24, which fell short of consensus estimates by $0.17. However, the retailer surpassed revenue expectations, posting $3.34 billion against the predicted $3.18 billion. The slight increase in Nordstrom banner sales by 0.6% year-over-year and a more significant growth of 13.8% for Nordstrom Rack in the quarter were highlighted, with comparable store sales for Nordstrom Rack up by 7.9%.

Despite the top-line growth, particularly from Nordstrom Rack, the company experienced a gross margin decline of 225 basis points year-over-year to 31.6%. This compression was attributed to timing issues, increased external theft, and efforts to clean up inventory. Even with these setbacks, Nordstrom has reaffirmed its full-year guidance.

CFRA pointed out that while Nordstrom Rack exhibits top-line growth, the overall company is still struggling with gross and operating margin performance. The firm remains skeptical that Nordstrom Rack can significantly enhance margins in the upcoming year. Consequently, CFRA believes the current valuation of Nordstrom's stock is extended and does not reflect the potential for margin improvements.

InvestingPro Insights

As we delve into the financial health and stock performance of Nordstrom (NYSE:JWN), InvestingPro data provides a clearer picture of the company's position. With an adjusted market capitalization of $3.6 billion, Nordstrom is trading at a forward P/E ratio of 9.91, which is considerably lower than the current P/E ratio of 26.69, indicating that analysts expect earnings to improve in the future. Moreover, the company's Price / Book ratio stands at 4.26, suggesting a premium market valuation compared to its book value.

On the performance front, Nordstrom has seen a significant price uptick of 36.15% over the last six months, reflecting positive market sentiment. This is further supported by a year-to-date price total return of 15.27%, showcasing the stock's strong performance in the short term. Nordstrom has been profitable over the last twelve months, which could offer reassurance to investors concerned about the company's earnings capabilities.

For those interested in further analysis, InvestingPro offers additional tips that delve deeper into Nordstrom's financials and stock performance. Subscribers can access these insights and benefit from an exclusive offer using the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription. Presently, there are 5 additional InvestingPro Tips available for Nordstrom, which can provide a comprehensive understanding of the company's potential for profitability and stock valuation.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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