Shares of Nordstrom plunged nearly 9% on Friday after JPMorgan downgraded the stock from neutral to underweight with a price target of $48. JPMorgan analyst Matthew Boss claimed that the struggling department store chain had “no silver bullets in the barrel” to revive its stagnant sales, and that it had “yet to find an equilibrium” between brick-and-mortar stores and e-commerce efforts.
The key facts
Nordstrom has aggressively expanded its e-commerce ecosystem with e-gifting options on its website, its flash sale site HauteLook, and its styling service Trunk Club. Nordstrom’s e-commerce businesses now generate over 20% of its revenues, but its investments in those businesses are causing its expenses to outpace its sales growth.
Nordstrom management also told JPMorgan that its brick-and-mortar traffic levels had dropped to their lowest levels since 1972, and that it expects its comparable sales to stay nearly flat on an annual basis through 2018. Wall Street expects Nordstrom’s revenue to rise 2.5% this year, but earnings are expected to fall 11% due to its higher e-commerce investments.
Co-President Blake Nordstrom told JPMorgan that the chain’s bottom line would continue declining if comps remained flat. This strongly indicates that Nordstrom will likely follow Macy’s lead and close many more stores in the near future.
Dragging down its peers
JPMorgan’s downgrade of Nordstrom also sank most of its industry peers. Macy’s and JCPenney both fell about 7% after the downgrade, and Kohl’s slumped 8%. All three companies are also struggling to grow their e-commerce ecosystems to offset sluggishness in their brick-and-mortar sales.
Despite the bearish sentiment regarding Nordstrom, the high-end department store has actually posted better sales growth than many of its rivals. Nordstrom’s sales rose annually in three of its past four quarters, in contrast to Macy’s, for example, which has posted seven straight quarters of year-over-year declines.
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