Nordstrom's Stock Sell-Off 'Overblown,' But Company Has To Get Tough On Cost Controls

Nordstrom, Inc. JWN reported Thursday after the market close first-quarter earnings of $0.43 per share, ahead of the consensus estimate. However, same-store sales and gross margin trailed expectations.

Notwithstanding the better-than-expected bottom-line results, the shares moved sharply lower.

Sell-Off Overblown

Commenting on the results, UBS said Nordstrom's underlying fundamental story remains intact after the first quarter, given the significant same-store sales misses by Kohl's Corporation KSS and Macy's Inc M.

The firm thinks Thursday's stock reaction to read-throughs from the department-store group was overblown, given the relative strength of Nordstrom's quarter.

That said, the firm said Nordstrom has to control costs more aggressively.

Aggressive Action On Costs Required

Analyst Michael Binetti said he is encouraged by the company's cost control in the first quarter. Despite incremental investments, the analyst noted that SG&A delivered by only about 30 basis points year-over-year.

The analyst noted the company guided 2017 retail EBIT to $780 million to $840 million, down from $911 million in 2016 on flat comps.

"While JWN's total revenue growth algorithm should remain well-above d-store peers for some time, the company is likely going to have to take much more aggressive action to address fixed cost deleverage from persistent – MSD% declines in the brick & mortar channel if we're right that US mall/d-store traffic trends are unlikely to improve in the medium term," the analyst said.

UBS maintains its Buy rating and $51 price target for the shares of Nordstrom.

At the time of writing, the shares of Nordstrom were plunging 9.45 percent to $41.85.

Related Links:

Mark Sebastian's Nordstrom Options Trade

Jim Cramer Breaks Down Retail's Biggest Problems __________ Image Credit: By Ricardo630 - Own work, CC BY-SA 3.0, via Wikimedia Commons