3 Different Views On Nordstrom's Q2

Nordstrom, Inc. JWN reported second-quarter results, which were interpreted differently by three Street analysts.

The Analysts

Bank of America analyst Lorraine Hutchinson maintains an Underperform rating on Nordstrom with a price target lowered from $32 to $29.

Wedbush analyst Jen Redding maintains at Neutral, $24 price target.

KeyBanc Capital Markets analyst Edward Yruma maintains at Overweight, price target lowered from $52 to $48.

BofA: The Bear Case

Nordstrom beat on the earnings line but sales fell short as both the core full-line and off-price Rack business fell short of expectations, Hutchinson wrote in a note. The company is not immune to growing competition and is likely negatively impacted by changing consumer tailwinds.

Perhaps more notable, according to Hutchinson, trends during the Anniversary Sale was disappointing as it is historically a strong sales period for Nordstrom.

Management lowered its full-year operating margin target from 5.3-5.8% to a new range of 5.3-5.6%. The new range implies downside from last year's operating margin of 5.9% and may seem optimistic as it implies third-quarter gross profit margins will be up.

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Wedbush: The Sideline Case

Nordstrom's "impressive" expense management and inventory control contributed to a 15-cent EPS beat while the revenue shortfall was mostly expected, Redding wrote in a note. Other metrics in the quarter fell short of expectations, including a gross margin miss of 50 basis points. Management also trimmed the high-end of its full-year EPS guidance from $3.65 to $3.50.

Nordstrom's stock is trading near a historical low and the multiple is hovering near "unprecedented" territory, Redding said. Investors may want to wait for greater visibility on the company's turnaround story before becoming aggressive on the stock.

KeyBanc: The Bull Case

Nordstrom's Anniversary Sale event was a success as the company focused on key brands and saw a year-over-year improvement in product sell-through, Yruma wrote in a note. On the other hand, the company was under-inventoried in several categories and management is active in fixing the problem ahead of the holiday shopping season.

Meanwhile, Yruma said SG&A was lower by $50 million in the quarter and inventories were 6.4% lower year-over-year. This should help the company maintain a flat third quarter EBIT margin despite preopening expense for its New York City flagship store. In fact, this suggests the company is seeing success in taking cost out of other aspects of the business

Price Action

Shares of Nordstrom traded higher by 16% at $30.77 Thursday afternoon.