Nordstrom Remains A Bright Spot In A Dismal Quarter For Retail

In retail, a sector that’s been hammered by store closings and bankruptcies, the second-quarter report from Nordstrom, Inc. JWN Thursday was a rare beat.

The luxury retailer is a bright spot in retail, KeyBanc Capital Markets analyst Edward Yruma said in a Thursday note. The research firm has an Overweight on Nordstrom and reiterated a $55 price target.

KeyBanc maintains that a management buyout at Nordstrom is “likely,” Yruma said (see his track record here).

Nordstrom reported Q2 sales of $3.79 billion against a $3.75 billion estimate and an EPS of 65 cents against an expected 64 cents after the close Thursday. The retailer narrowed and raised the low end of its EPS guidance for fiscal 2017, from a range of $2.75 to $3 to a range of $2.85 to $3 against an estimate of $2.96.

A Second Opinion

Baird Equity Research maintains a Neutral on Nordstrom and a $50 price target after the Q2 report.

“We’re encouraged by positive full-price comps and merchandise margin trends — adding visibility to the near-term earnings picture,” analyst Mark R. Altschwager said in a Thursday note.

Nordstrom’s long-term margin profile remains under pressure by structural channel shifts and growth investments, the analyst said (see his track record here).

Baird is modeling a stable earnings picture for the retailer but is unconvinced of an expansion in valuation, resulting in a balanced risk/reward thesis for Nordstrom, according to the note.

The firm adjusted its estimates for Nordstrom’s EPS in fiscal 2017 from $2.96 to $2.98 and maintains an estimate of $2.98 for fiscal 2018.

Strong E-Commerce Results

The company’s e-commerce investments and differentiated product lines are resulting in better performance than Nordstrom’s peers, KeyBanc's Yruma said. The analyst attributed much of the strong Q2 to a “successful” anniversary sale and e-commerce performance.

Three of the top five brands during Nordstrom’s anniversary sale were in-house, Yruma said.

Nordstrom’s website grew by 20 percent, and NordstromRack.com and Hautelook grew by 26.7 percent combined, according to KeyBanc — and the company’s online business as a whole is growing 20 percent year over year.

The company’s early investment in e-commerce and identical margins for online and in-store sales are factors in KeyBanc’s Nordstrom thesis.

“Finally, we believe Nordstrom has one of the most capable management teams in our coverage,” Yruma said.

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