Nordstrom stock is skyrocketing, but there are doubts about whether it can meet its own outlook

“[T]he guidance is based on expecting the top line growth to be driven by improved performance at the Nordstrom Rack and steady growth at Nordstrom,” said Anne Bramman, chief financial officer of Nordstrom, on the earnings call, according to a FactSet transcript.

“And it’s really leveraging our market strategy and all the advances we have in merchandising plus some of the work that we’ve been doing in category management and supply chain improvement across the board.”

But UBS analysts have doubts.

“[W]e believe this guidance assumes gross margin improvement and strong SG&A leverage year-over-year,” analysts said.

“We think this will be hard for Nordstrom to achieve since it likely faces macro headwinds, a much more promotional environment, and major cost inflation pressure in FY22.”

Among the headwinds that UBS analysts identified for companies in the softlines business are coming Fed actions and a consumer spending switch to services rather than goods.

See: Powell signals 25 basis point rate hike is coming at policy meeting in two weeks

UBS rates Nordstrom stock sell with a $12 price target.

JPMorgan maintained its underweight stock rating but raised its price target $1 to $24.

“With the current backdrop potentially ‘as good as it gets’ for both Nordstrom’s $100K+ core household income customer[…] and on the pricing/promotional front […] Nordstrom’s absolute and relative performance remain underwhelming with 2021 revenue levels below 2019 with EBIT margins 200 basis points below 2019,” analysts said.

But other analyst groups are more upbeat.

“We believe Nordstrom’s ‘closer to customers’ strategy, digital integration with stores and history of helping build new innovative brands are competitive advantages,” wrote Cowen.

“We are cautiously optimistic regarding the acceleration in EBIT margin next year as Nordstrom optimizes inventory management and stores versus digital channels.”

Cowen rates Nordstrom stock market perform with a $30 price target, up from $25.

That “closer to customers” strategy includes leveraging the brick-and-mortar stores to better engage with customers across physical and digital channels, according to Chief Executive Erik Nordstrom, who also spoke on the earnings call.

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Credit Suisse maintained its neutral stock rating but raised its price target to $29 from $26.

And BMO Capital Markets kept its market perform stock rating but moved its price target up to $30 from $23.

“If FY22 EPS guidance is a new base level, shares look attractive even after the after-hours surge. If on the other hand, FY22 is a blip, and we return to their
downward fundamental trajectory, questions remain,” wrote analysts led by Simeon Siegel.

Nordstrom stock is down 27.7% over the past year while the S&P 500 index
SPX,
+1.83%
has gained 13.3%.