Nordstrom's Inventory Markdown To Have Positive Effect On Growth, Says Analyst

Telsey Advisory Group analyst Dana Telsey reiterated a Market Perform rating on the shares of Nordstrom Inc JWN and raised the price target from $19 to $21.
Nordstrom reported 4Q22 adjusted EPS of $0.74 versus $1.23 last year, above the consensus.
The upside came from SG&A control as topline growth and gross margin came in weaker than expected.
Gross margin contracted 520 basis points YoY to 33.2%, coming in worse than the consensus for a 290- basis points decline, driven by higher markdown rates as JWN worked to rightsize inventory in a highly promotional environment, said the analyst.
The analyst remarked that despite the 4Q22 beat, JWN is taking a conservative view on the consumer in FY23.
The company expects elevated inflation and rising interest rates to continue to weigh on consumer spending, particularly in 1H23.
And while supply chain disruptions are dissipating, inflation is expected to impact labor and transportation costs, impacting margin, said the analyst.
The analyst opined that though FY23 EPS guidance meets expectations, Canadian wind-down weights on the topline.
Like many retailers, JWN is preparing for a cautious consumer in FY23, given continued inflation and pressured discretionary income, and is lapping difficult compares in the first half of the year, added the analyst.
The analyst is encouraged by the company taking action, reflected in the increased markdowns to move through excess inventory and the decision to shut down its unprofitable Canada business, supporting an EPS outlook meeting consensus estimates despite a weaker topline.
Price Action: JWN shares are trading higher by 1.29% at $19.58 on the last check Friday.
Photo Via Wikimedia Commons

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