Macro Pressures Likely To Weigh On Nordstrom's Inventories And Rack, Says Analyst

Telsey Advisory Group analyst Dana Telsey reiterated a Market Perform rating on the shares of Nordstrom Inc JWN with a price target of $25.00.
The analyst forecasts Nordstrom's net revenues to decline 5.1% Y/Y to $3.45 billion versus the consensus of down 4.3% to $3.48 billion.
Management guided for total revenues to decline mid-single digits Y/Y in the quarter, including the impact of one week of Anniversary sales shifting out of Q3 to Q2.
Telsey looks for retail gross margin contraction of 80 bps to 34.3% versus the consensus of 34.2% along with 150 bps of SG&A deleverage to 35.9%.
The company will report Q3 FY22 earnings on November 22.
She added that private-label brands underperformed last quarter, resulting in higher-than-anticipated inventory levels.
Within Nordstrom's Rack business, management is focused on rebalancing its assortment to encompass a higher mix of premium brands that carry higher price points.
The analyst expects to hear an update on rebalancing efforts and promotions on the earnings call.
In recent quarters, management has been focused on maneuvering a challenging and likely promotional holiday environment, reinvigorating customer demand and moving through inventory at Rack, and managing a changing shareholder base, all while trying to drive long-term EBIT margin expansion.
The company continues to benefit from its exposure to occasionwear and a higher end consumer, though the business has seen trends decelerate significantly among the company's lower income cohorts at the Rack business, leaving an excess inventory.
The recent announcement of the CFO's impending departure adds another layer of near-term uncertainty, in the analyst's view.
However, the annual guide implies improvement in the fourth quarter for a holiday season where visibility to macro trends remains challenging.
Related: Nordstrom's CFO Departure 'Surprising' Ahead Of Upcoming Holiday Season, Says Analyst
Price Action: JWN shares are trading lower by 10.04% at $19.49 on the last check Wednesday.
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