Nordstrom Down After Forecast of Sales Drop, Thinner Pretax Margin

Nordstrom  (JWN) – Get Report shares slid Thursday after the Seattle luxury retailer estimated that fourth-quarter sales will drop by the low 20s percentage points and that profit margin based on earnings before interest and taxes will shrink 5 points due to the covid pandemic.

The news drew a pessimistic response from analysts. Telsey downgraded the stock to market perform from outperform. In the near term, the stock will have a “challenging” time maintaining its premium valuation, Telsey said, according to Bloomberg. It affirmed its price target at $28

Nordstrom recently traded at $36.12, down 3.9%. It has well more than doubled in the past three months amid enthusiasm that the covid vaccines would make consumers comfortable going out to shop.

BMO analysts said the Nordstrom estimates indicate a more difficult profit scenario, thanks to lower sales volume, higher shipping expenses and premium holiday pay for Nordstrom workers, Bloomberg reports. The analysts expect “ongoing pressures to weigh on near-term profitability.”

But they also said Nordstrom would remain a “recovery trade favorite.” They affirmed their rating of market perform and their price target of $24.

Morningstar analyst David Swartz puts fair value at $33.50. Nordstrom “is likely to report [a loss per share] of more than $4 for 2020, but we forecast positive earnings per share in 2021 (our current expectation is $1.57),” he wrote in a commentary Thursday.

“In the long term, we forecast revenue growth and operating margins of about 2% and 5%, respectively. 

“We view Nordstrom as fully valued as its shares trade at a slight premium to our per-share fair-value estimate of $33.50.”