Nordstrom stock rises as progress progresses, but there is still room to move

A Nordstrom sign outside one of the company’s department stores.

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Shares of Nordstrom soar after the department store chain released bullish guidance for the coming year, forecasting single-digit earnings and top-line growth.

Other retailers, including Macy’s, Kohl’s and Target, have also offered better-than-expected full-year forecasts in recent days. They expect further consumer momentum as people return to social activities and offices.

But no one has seen such a strong reaction on Wall Street as Nordstrom. Shares recently rose more than 30% in premarket trading.

This is because Nordstrom has been drowning in negative sentiment in recent months, according to Evercore ISI analyst Omar Saad. This was due in large part to poor performance in the discounted rack segment, he said. So in the last quarter, Nordstorm made “small steps,” he said, that were more than enough to send the retailer’s stock skyrocketing.

It also means Nordstrom still has plenty of room for growth, especially in the rack segment, where net sales are still below 2019 pre-pandemic levels. By comparison, Nordstrom’s full-line department store business was virtually unchanged over the period, the company said on Tuesday.

At the close of the market on Tuesday, Nordstrom shares were down more than 30% over the past six months. Macy’s shares are up 8% while Kohl shares are down less than 1% over the same time period. Nordstrom is also currently one of the most heavily traded stocks, with 22% of its shares available for trading short-traded.

BMO Capital Markets analyst Simeon Siegel supported Saad’s opinion. The analyst praised Nordstrom for ending the year much stronger than it started.

However, BMO remains on the sidelines from recommending the stock, he said, because it’s not clear if Nordstrom can actually meet its yearly goals or if they end up being a “one-off achievement.”

The BMO target price for Nordstrom shares is $30. Shares closed on Tuesday at $19.54.

During a profits conference call, Nordstrom explained to analysts that the company’s Rack department had a harder time keeping merchandise safe during the pandemic as supply chain hurdles deepened. He relies on other clothing brands to offer overstock for sale at a discount, and there was no overstock.

Nordstrom CEO Eric Nordstrom said by phone that the company had recently done a “thorough analysis” of the rack segment. According to him, the company is now working on increasing brand awareness, expanding the range of products and offering a wider range of prices.

“We are confident in our ability to profitably grow our rack business and will not rest until we do so,” he said.

One of the biggest tailwinds Nordstrom sees in the coming months is a rebound in customer visits to its urban stores, which are lagging behind suburban locations due to a lack of international tourism.

Its apparel and footwear categories, which collectively account for more than 70% of business, also remain below 2019 levels, the company said.

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