Key Points
- Despite an earnings beat investors are concerned about deep discounts eroding margins as shares sold off.
- Black Friday 2022 foot traffic fell (-25.8%) from 2019 pre-pandemic levels for Nordstrom.
- 2022 may be a backloading sales year as consumers wait to go bargain hunting.
- Nordstrom shares are down (-27%) for the year and trade at 7.3X forward earnings with a 4.36% dividend yield but have a heavy 23.5% short interest
- 5 stocks we like better than TJX Companies
Premium retail department store chain Nordstrom, Inc. NYSE: JWN stock has fallen (-27%) in 2022. It’s recent earnings beat was overshadowed by falling YoY metrics. The sell-off was accelerated after bearish comments were made by CEO Erik Nordstrom at the Morgan Stanley Consumer & Retail conference.
Mr. Nordstrom stated that the Company is seeing the “signs of strain across all customer cohorts”. The 2022 holiday shopping season will depend on the final weeks heading into Christmas. Hannukah falling later in the month adds an extra weekend day of shopping, which presents an opportunity for customers to bargain hunt later into the season.
Black Friday Week Traffic was Down
While Nordstrom saw a (-25.8%) YoY decline in foot traffic during Black Friday Week, they were not alone in the sharp decline. Overall Black Friday Week industry sales volume fell (-5%) YoY and (-9%) over 2019 levels. Technology, toys, and apparel all fell over last year’s Black Friday week. Beauty was the only category that saw increased sales for the past consecutive three years.
Red Friday Losers
Among department stores, Black Friday foot traffic saw declines of (-29.3%) for Macy’s, Inc. NYSE: M and (-29%) for Kohl’s Corporation NYSE: KSS, respectively. Big box retailers and warehouse clubs didn’t escape the carnage as Costco Whole Sale Corporation NASDAQ: COST saw a (-25.3%) drop in foot traffic and Sam’s Club owned by Walmart Inc. NYSE: WMT saw a (14.2%) drop. BJ’s Wholesale Club Holdings NYSE: BJ saw a (-25.3%) drop. Target Corporation NYSE: TGT saw a (-5.8%) drop, but The Home Depot, Inc. NYSE: HD and Lowe’s Companies, Inc. NYSE: LOW saw 23.4% and 30.5% drops in traffic.
Black Friday Winners
Winners include off-price retailers like Ross Stores, Inc. NASDAQ: ROST and The TJ Companies, Inc. NYSE: TJX saw an uptick in traffic over 2021 level. Ulta Beauty, Inc. NASDAQ: ULTA saw a 16.5% bump from 2021 and 31% from 2019 pre-Covid levels. While brick-and-mortar store traffic fell, online sales jumped to a record $9.12 billion according to Adobe Inc. NASDAQ: ADBE Analytics. E-commerce platform Shopify Inc. NASDAQ: SHOP saw a 17% YoY sales jump to $3.3 billion for Back Friday.
Lackluster Earnings
On Nov. 22, 2021, Nordstrom released its third-quarter fiscal 2022 results for the quarter ending October 2022. The Company reported adjusted earnings-per-share (EPS) of $0.20 excluding non-recurring items versus consensus analyst estimates for a profit of $0.15, a $0.05 per share beat.
Actual loss per share including a supply chain technology and asset impairment charge was (-$0.13) or (-$20 million). Revenues fell (-3.8%) year-over-year (YoY) to $3.5 billion, beating consensus analyst estimates for $3.49 billion. One day of the Anniversary Sale went into Q3 2022 having a (-200 bps) impact on net sales. Nordstrom brand net sales fell (-3.4%) YoY. Nordstrom Rack sales fell (-1.9%) YoY. Ending inventories rose 0.6%.
The Nordstroms Speak
CEO Erik Nordstrom commented, "When customer demand decelerated in late June, we took action to align inventory and expenses with the changing trends, which has prepared us to navigate the current macroeconomic environment. This quarter our teams continued to advance our Closer to You strategy and supply chain capabilities, as we focus on initiatives to drive profitable growth and achieve our long-term strategic and financial goals.
" President and Chief Branding Officer Pete Nordstrom added, "We are right-sizing our inventory levels and mix and are on track to end 2022 in a healthy and current position. Customers continue to respond to newness and fashion in our offering, and we are focused on remaining agile to respond to their changing needs.”
Forward Guidance
The Company expects fiscal full-year 2023 EPS between $2.30 to $2.60 versus $2.36 analyst estimates. Full-year 2023 revenues are expected to come in between $15.52 billion to $15.83 billion versus $15.67 billion analyst estimates.
Back in the Downtrend Channel
JWN stock attempted to break the falling downtrend price channel when it broke up through the weekly 20-period exponential moving average (EMA). An attempt to break through the weekly market structure low (MSL) buy trigger at $22.01 failed to hold as shares rejected back down under the weekly 50-period MA at $22.40.
This formed a weekly market structure high (MSH) sell trigger under $19.67, which caused a collapse back into the downtrend price channel as the weekly stochastic started to cross back down through the 40-band. The bar has been set low, but Nordstrom really needs to see a sharp spike in consumer traffic in the latter part of December for a backloaded sales rebound. Pullback support levels sit at the $16.14 swing low, $15.31, $14.17, $13.52, $12.80, and $12.27.
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