The company is focused on digitalizing the majority of its business, but I remain bearish on the stock due to incremental shortcomings. (See JWN stock charts on TipRanks)
Nordstrom stock is trading down by 26% over the past six months.
The company beat its earnings estimates in Q2, recording quarterly revenue of $3.7 billion (a 96.8% year-over-year increase), in turn beating its EPS estimate by $0.21.
Disposable income remained high throughout the early part of 2021, but as disposable income per capita decreases, so too will marginal utility to spend, and the result might be a suppressed top line.
Considering the firm’s restructuring, with an emphasis on digitalization, lower long-term operating costs can be a value add, but for the time being, the company’s recent operating margins are unlikely to sustain.
As well, digitalization is an industry-wide phenomenon, and it doesn’t set Nordstrom apart from other retailers.
Nordstrom continues to face a significant amount of pressure from the likes of GAP, Limited Brands, Abercrombie & Fitch (ANF), and others.
Supply Chain Concerns
CEO Erik Nordstrom has mentioned that supply chain issues have hit Nordstrom hard, and that he thinks these constraints will probably affect the company for another six to 12 months.
He further believes that Nordstrom’s slower-than-anticipated growth could make it more difficult for the firm’s procurement managers to determine the level of inventory required going forward.
Disappointing EV/EBIT (42.7) and forward PEG (23.2) ratios mean that growth in income statement line items are lagging the market.
Nordstrom is also struggling to provide value to shareholders with its forward diluted EPS anticipated to shrink by 11.1%, while its EPS growth for the next three to five years is expected to underperform its sector by 63.6%.
Wall Street’s Take
Wall Street remains divided on the stock, with two Buy ratings, three Hold ratings, and three Sell ratings assigned in the past three months. The average JWN price target of $37.13 implies 29.3% upside potential.
Disclosure: At the time of publication, Steve Gray Booyens did not have a position in any of the securities mentioned in this article.
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