Nordstrom Analysts Break Down Q3 Earnings: 'Ongoing Market Share Loss'

Nordstrom, Inc. JWN shares plunged on Wednesday after the company reported a third-quarter earnings miss driven by rising labor costs.

Nordstrom reported third-quarter adjusted EPS of 39 cents, missing analyst estimates of 56 cents. Revenue for the quarter was $3.64 billion, beating analyst expectations of $3.55 billion. Revenue was up 17.7% from a year ago.

Revenue remained below its $3.67 billion pre-pandemic level in 2019.

Nordstrom department store revenue was up 11% from a year ago and 3% on a two-year basis. Nordstrom Rack sales were particularly disappointing, up 35% from 2020 levels but down 8% compared to 2019.

Nordstrom’s two-year sales decline looked particularly bad compared to competitors that grew sales on a two-year basis in the quarter, including Macy's Inc M, TJX Companies Inc TJX and Ross Stores, Inc. ROST.

Looking ahead, Nordstrom maintained its full-year revenue growth guidance of 35%.

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Nordstrom's Margins Squeezed: Bank of America analyst Lorraine Hutchinson said Rack was hurt by low inventory levels and an unfavorable product mix.

“We expect Nordstrom to continue to recover at a slower rate than peers, without the outsized gross margin opportunity from lower clearance that is benefiting the rest of the sector,” Hutchinson wrote.

Telsey Advisory Group analyst Dana Telsey said Nordstrom simply doesn’t have enough earnings visibility to be a buy at this point.

“Over time, JWN can benefit from its exposure to the off-price channel, a profitable digital presence, a pruned portfolio of full-line stores and accelerated operational efficiencies,” Telsey wrote.

Reboot Needed For Nordstrom? Credit Suisse analyst Michael Binetti said Nordstrom’s Rack strategy may need a major reboot.

“We think JWN will need to re-evaluate its strategy of primarily using Rack to clear end of season goods from the brands that it sells at full price Nordstrom stores,” Binetti wrote.

KeyBanc analyst Edward Yruma said the quarter was certainly disappointing given “what looks to be ongoing market share loss” for Nordstrom.

“We worry that tactical missteps are preventing JWN from capitalizing on what look to be strong secular trends,” Yruma wrote.

Nordstrom Ratings, Price Targets:

• Bank of America has an Underperform rating and $22 target.
• Credit Suisse has a Neutral rating and price target cut from $34 to $26.
• Telsey Advisory Group has a Market Perform rating and lowered the price target from $36 to $27. 
• KeyBanc has an Overweight rating and $45 target.