Leading fashion retailer Nordstrom, Inc. (JWN) operates 100 full-line stores and 248 Nordstrom Rack locations in 40 U.S. states and Canada, two clearance stores, five Nordstrom Local service hubs, and online stores. The stock of the Seattle, Wash.-based concern has declined 21.6% in price over the past month to close yesterday’s trading session at $22.53. Moreover, the stock has lost 29.8% since the company reported weaker-than-expected third-quarter earnings on November 23.

JWN’s total revenues came in at $3.64 billion for its fiscal third quarter ended October 30, 2021, up 17.7% year-over-year. The company’s net earnings came in at $64 million, versus $53 million in the year-ago period. However, its net sales for Nordstrom Rack decreased 8% compared to the third quarter of fiscal 2019. Furthermore, its digital sales declined 12% year-over-year.

The timing of this year’s Anniversary Sale, with approximately one week of the sale falling in its third quarter of 2021, had a positive impact to the tune of approximately 200 basis points on JWN’s net sales compared with its fiscal 2019. However, analysts at Cowen lowered their price target on the stock on November 24. Labaton Sucharow announced on November 29 that it is investigating potential securities violations and breaches of fiduciary duty claims against the company. Furthermore, hedge hedge funds’ interest in the stock has recently declined. So, JWN’s near-term prospects look uncertain.

Here is what could shape JWN’s performance in the near term:

Strategic Collaborations

JWN announced a new long-term partnership with Fanatics on November 18 to provide its customers access to thousands of high-quality, licensed sports fan products available exclusively through Fanatics’ industry-leading assortment. JWN announced an ongoing partnership with Cristina Martinez on September 20. It also launched the Nordstrom by Cristina Martinez collection in September 2021.

Nordstrom Rack Business Challenges

JWN’s Nordstrom Rack business continues to be challenged by low inventory levels in premium brands and critical categories, such as women’s apparel and shoes. Rack’s top 50 brands represented roughly 50% of sales in 2019. However, these brands represent only 42% of sales year-to-date, highlighting the shortage in merchandise availability. The company’s management said on November 23, “We are not satisfied at all with our Rack business as clearly our recovery is lagging what we think it should be.”

Stretched Valuation

In terms of forward non-GAAP P/E, JWN’s 17.01x is 15.1% higher than the 14.78x industry average. The stock’s 2.84x forward non-GAAP PEG is 206.3% higher than the 0.93x industry average. In addition, its 17.75x and 7.88x respective forward EV/EBIT and P/B are higher than the 13.79x and 3.61x industry averages.

POWR Ratings Don’t Indicate Enough Upside

JWN has an overall C rating, which equates to a Neutral in our POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree. 

Our proprietary rating system also evaluates each stock based on eight distinct categories. JWN has a C grade for Momentum, which is in sync with its 21.6% loss over the past month and 22.9% decline over the past three months.

The stock has a D grade for Stability, consistent with its 2.39 beta. Moreover, JWN has an F grade for Sentiment, which is in sync with unfavorable analyst sentiment.

JWN is ranked #51 out of 63 stocks in the A-rated Fashion & Luxury industry. Beyond what I have stated above, we have also given the stock grades for Growth, Value, and Quality. Click here to get all the JWN ratings.

Bottom Line

JWN’s shares have plunged recently because the company said labor costs lowered its quarterly profit. However, at the same time, its rivals Macy’s, Inc. (M) and Kohl’s Corporation (KSS) have returned to above pre-pandemic sales levels. JWN stock hit its 52-week low of $20.90 on November 26, 2021. Furthermore, analysts expect its EPS to remain negative for the quarter ending April 30, 2022. So, we think it could be wise to wait for a better entry point in the stock.

How Does Nordstrom (JWN) Stack Up Against its Peers?

While JWN has an overall POWR Rating of C, one might want to consider investing in the following A-rated (Strong Buy) Fashion & Luxury stocks: Hugo Boss AG (BOSSY), H & M Hennes & Mauritz AB (HNNMY), and Signet Jewelers Limited (SIG).

JWN shares were trading at $22.01 per share on Tuesday morning, down $0.52 (-2.31%). Year-to-date, JWN has declined -29.48%, versus a 25.20% rise in the benchmark S&P 500 index during the same period.

About the Author: Manisha Chatterjee

Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst. More...

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