Nordstrom inventory down 17% after quarterly sales decline from 2019

The shares of Nordstrom Inc. were down 17% in Wednesday trading after the luxury department store reported quarterly sales that showed a 6% decline compared to 2019.

Nordstrom JWN,
-17.64%
reported earnings and sales that exceeded expectations. However, on a two-year stack, sales were down 6% from fiscal 2019. The Nordstrom brand was down 5% compared to 2019, and the off-price Rack brand was down 8%.

Nordstrom says the anniversary sale has shifted to the third quarter this year, pushing Nordstrom’s branded sales down about 300 basis points from 2019, though sales surpassed that year’s level.

During the earnings call, Erik Nordstrom, the retailer’s CEO, said the Rack brand is undergoing a “merchandise repositioning” that is already showing results in the asset, home and kids categories.

See: Nordstrom stock plummets after tougher sales comparison

Department stores struggled before the pandemic and saw clothing sales and stores temporarily close during the pandemic. But the most recent results from Macy’s Inc. m,
+0.47%
and Kohl’s Corp. kss,
-0.12%
were better than expected and accompanied by increases in the outlook, pushing stocks higher.

Also: Macy’s plan to add Toys ‘R’ Us to 400 locations is part of a merchandise strategy that has worked for Target

On the off-price side, TJX Cos. tjx,
+0.66%
exceeded expectations and analysts accused Ross Stores Inc. ROST,
+0.15%
of being too conservative.

“With the current backdrop that may be ‘as good as it gets’ for both Nordstrom’s $100K+ core income customer … revenue ~900 basis points lower than comparable department stores, Rack compositions ~2,500 basis points lower than off-price peers, and management predicts operating margins for the full year ~200 basis points lower than 2019,” JPMorgan analysts wrote in a note.

JPMorgan downgraded Nordstrom’s stock from overweight to neutral and lowered its price target from $39 to $34.

BofA Securities maintained its underperform stock rating, though it raised its price target from $19 to $22.

“We expect lost profits and multiple contractions due to weak sales and a lack of margin expansion to result in underperformance in stock prices,” analysts said.

Wedbush maintained its neutral stock rating and a price target of $35.

And: Red carpet resurgence: Analysts get bullish on luxury apparel after Ralph Lauren and Capri surpass expectations

“Despite an impressive beat and raise, the results are below the high bar set in department stores by the likes of Dillard’s and Macy’s with Nordstrom seemingly
less benefit from Covid tailwind versus industry, likely disappointing
investors looking for signs of momentum from the industry tailwind, as well as
signs of fundamental improvement enough to make a comeback,” analysts wrote.

Not all research groups were equally gloomy. Jefferies maintained his buy rating and a price target of $48.

And KeyBanc rates Nordstrom stocks overweight with a price target of $45.

“The second quarter is unlikely to satisfy the bulls in the near term given ongoing cost pressures, but we believe the company has made continued progress on its long-term initiatives, and we believe it will strengthen its position as the leading multibrand premium/luxury retailer,” KeyBanc Capital Markets wrote.

“Momentum continues to accelerate, reinforcing our upward bias towards earnings forecasts.”

Nordstrom shares are up 0.4% this year, while the benchmark S&P 500 index SPX,
+0.22%
gained 19.8% over the period.

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