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Nordstrom Inc. shares soared as much as 20% in Wednesday trading with KeyBanc Capital Markets analysts upbeat about the luxury department store retailer’s prospects post-pandemic.
Nordstrom’s JWN, +11.65% third quarter swung to a profit, with the company leaning into increasing digital capabilities.
Digital sales of $1.6 billion accounted for 54% of total business and additional merchandise is now eligible for two-day delivery. Store pickup is now also available for Nordstrom online as well as its e-commerce site for off-price retailer Rack and Haute Look, the members-only shopping site. And the company said virtual styling accounted for 30% of all styling appointments and sales from those personalized looks tripled in volume compared with the second quarter.
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“While we’re continuing to amplify categories that are relevant with customers during the pandemic, we believe that over the medium-to-long term, there will be pent-up customer demand, particularly around occasions like travel or in-person social events,” said Chief Executive Erik Nordstrom on the earnings call, according to a FactSet transcript.
KeyBanc says Nordstrom “is one of our favorite names heading into 2021 as we think it’s well positioned in a reopening scenario.”
KeyBanc rates Nordstrom shares overweight with a $30 price target.
“Twenty twenty-one should see an acceleration, particularly in the second half, as a potential fashion shift as well as renewed focus on work/travel/gathering drive incremental apparel demand,” analysts said. “Holiday remains a bit of an unknown this year, but low industry inventory as well as a bias towards gifting ‘things’ augurs well for holiday.”
In recent years, many holiday gifts focused on experiences, like tickets to an event, which aren’t happening the moment.
Cowen analysts think the company is doing a good job managing inventory and engaging with consumers, but worries about the company’s ability to maintain full-price and off-price sales.
The company said it had “strong… regular price selling trends” during the quarter. Still, net sales fell 7%.
Sales at Nordstrom Rack fell 32%.
Cowen notes that shares have accelerated over the past month, up more than 105%.
“We concur with this sentiment as Nordstrom’s category mix does position sales to accelerate next year as the environment normalizes,” analysts led by Oliver Chen wrote.
“We commend management for expert cost and inventory control during the pandemic which sets up favorable dynamics into next year. Further, competitor closures and market share gains bode well for long-term customer health and loyalty growth.”
Cowen rates Nordstrom shares market perform with a $28 price target, up from $16.
UBS analysts, however, maintained their sell rating and $11 price target.
“We think the Street underestimates the pressure on Nordstrom’s earnings from share loss as consumers’ migrate to online pure-play channels, retailers with better value-for-money propositions such as TJX, and brands’ own stores and websites,” analysts led by Jay Sole wrote.
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“We think the forces working against Nordstrom are bigger than just fashion trends.”
GlobalData is equally pessimistic, particularly as it concerns the off-price channel. Part of the problem is that Rack doesn’t offer merchandise for the home. Another is the lack of focus on casual and comfortable clothing, which has been the popular apparel purchase through the pandemic.
“Before coronavirus hit, we flagged some of the weaknesses with Rack and suggested it needed to diversify beyond apparel and improve its assortment in clothing,” wrote Neil Saunders, managing director at GlobalData. “Coming out of the pandemic, we believe these fixes to be doubly important.”
Nordstrom stock has tumbled 33% for the year to date. The ProShares Decline of the Retail Store ETF EMTY, +1.12% has fallen 30.1%. And the benchmark S&P 500 index SPX, -0.15% is up 12.4% for the period.
