Retail Is Hot But Nordstrom Is Not
Don't get us wrong, Nordstrom (NYSE: JWN) had a great quarter just one that failed to impress when compared with the industry peers. While strong tail...
Nordstrom Fails To Impress The Market With Q2 Results
Don't get us wrong, Nordstrom (NYSE: JWN) had a great quarter just one that failed to impress when compared with the industry peers. While strong tailwinds continue to blow through the industry, consumers have voted with their dollars and those votes are being counted. In the eyes of JPMorgan, where analysts just lowered the stock to an underweight rating, the good times for this company could be as good as they're going to get. The trends within the industry may be strong but that won’t matter if the company has already maxed out its market. The headline “Nordstrom Raises Guidance” only means so much when the analysts were already expecting it.
Nordstrom Beats Consensus And Guides Higher
Nordstrom reported a great second-quarter and one in which we can find only one flaw. The revenue $3.66 billion may be up 96.8% over last year and 1400 basis points better than the consensus but it is still down versus 2019. Where most of the major retail winners are already surpassing their 2019 revenue levels, Nordstrom's net revenue is down -5.4 %. That aside, the company says revenue strength is being driven by increased traffic and pricing power which is resulting in higher sales in both its brick-and-mortar and e-commerce channels.
The strength in sales is helping to reduce inventories and leverage fixed costs which had a significant impact on the bottom line. The company's margin for the quarter was positive versus a loss in the previous year with GAAP earnings of $0.49 beating the consensus by $0.21. It is noteworthy that the company's results were impacted by the timing of its annual sales event. The shifting of the annual sales event put 1 week of it in the third quarter and impacted revenue by as much as 200 basis points relative to 2019.
"We capitalized on improving customer demand with focused execution, healthy inventory sell-through and continued expense management to deliver strong quarterly results. We remain focused on executing our strategy to win in our most important markets, broaden the reach of Nordstrom Rack and increase our digital velocity, and are well-positioned for continued progress toward our long-term strategic and financial goals as we look ahead to the second half of the year,” said Erik Nordstrom, chief executive officer of Nordstrom, Inc.
Turning to the guidance, you’d think the quarterly outperformance would put the company on track to beat the consensus but it doesn’t. The company raised guidance for full-year revenue to greater than 35% growth versus the previous guidance for greater than 25% growth. This assumes revenue in the range of $14.47 billion which compares to the analyst’s consensus of $14.52. Underwhelming indeed.
Analyst Confidence In Nordstrom Slips
JPMorgan isn't the only sell-side firm to come out with a negative comment in the wake of Nordstrom's 2Q report. Marketbeat analyst sentiment data reveals Credit Suisse and Deutsche Bank both maintained neutral ratings but lowered their price targets to a consensus near $35.50. This compares to the general consensus of neutral and a price target of $33.50 and may signal a period of underperformance for this stock.
The Technical Outlook: Short Sellers Drive Nordstrom Lower
Nordstrom's performance may have set it up for today's fall but it is the short-sellers who are to blame for price actions decline. Shares of the stock are down more than 17% which is, ironically, the same level as the short interest going into the report. The Q2 results weren't bad, they didn't even miss consensus, they're just lagging Nordstrom's peers which, in our view, is setting up a possible buying opportunity. Price action is down 17% but has, so far, found support at the $31 level. If this level can hold up we see the market forming a bottom and eventually moving higher with the idea of potential outperformance in the second half. If support at this level cannot hold up this stock could be in for another 10% to 20% decline.