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Nordstrom value – overreaction from Q2 earnings

Nordstrom reported Q2 earnings and beat analyst estimates, however, the stock sunk on the news. Nordstrom sales have doubled year-over-year in the second quarter (3.56 bn) and the company is turning a profit again (80 million compared to 255 million loss last year). Despite this, figures are still below pre COVID numbers and margins have continued to contract. This, along with the fact that competitors such as Macy’s have rebounded stronger caused investors to sell. Since the earnings release, the stock has fallen almost 25%.

Thesis:
Nordstrom guidance raised (growth will be shown in Q3 unless Delta vastly destroys department stores)
Nordstrom increased guidance. It anticipates year-over-year revenue growth of more than 35% and an operating margin between 3% and 3.5%. Previously, expected full-year revenue growth of more than 25% and a full-year operating margin of around 3%.

Lag in recovery amongst peers is normal and expected due to target customer and type of products
As the article mentions, “Boss noted a strong backdrop for Nordstrom’s core customer with $100,000 or more in household income”. Many customers making over 100k work office jobs. Jobs, which as we all know, have been remote for the better part of a year and a half. The shift from office wear to athleisure is a reason companies such as Macy’s have performed nicely coming out of the pandemic. Nordstrom will have to wait for the return to the office to happen in full force to reap the benefits of the “reopening”.

Weddings and return to office are clear catalysts for growth
Expectations for more weddings in 2021 due to postponed events during the pandemic will push people to speciality item/luxury department stores. Nordstrom stands to benefit from this.
Return to office will push people to physical stores to update their wardrobe.

From a qualitative standpoint, is the sell-off justified? Is Nordstrom one of the few reopening plays left or is it a value trap?

What do you think?

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9 Comments

  1. The chart is broken it’s below every single moving average and has significant overhead supply. Even if you buy now there is a SIGNIFICANT amouny of bagholders who want to liquidate between 30-32 which will make it very difficult to go up.

    So your upside is effectively”limited”. There are better stocks out there to deploy capital

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