Retail

Nordstrom shares soar as the department store chain makes 'baby steps.' But it still has a ways to go

Key Points
  • Nordstrom shares are soaring after the department store chain offered up an upbeat outlook for the coming year, forecasting profits and revenue growth.
  • According to Evercore ISI analyst Omar Saad, that's because Nordstrom has been drowned in negative sentiment in recent months, largely due to poor performance at its off-price Rack business.
  • And so in the latest quarter, Nordstorm made "baby steps," he said, which was more than enough to give shares of the retailer a massive lift.

In this article

Nordstrom signage outside one of the company's full-line department stores.
Tim Boyle | Getty Images News | Getty Images

Nordstrom shares are soaring after the department store chain offered up an upbeat outlook for the coming year, forecasting profits and single-digit revenue growth.

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

But none have seen as strong of a reaction on Wall Street as Nordstrom. Its shares closed Wednesday up a whopping 37.8%, bringing the retailer's market cap to $4.3 billion.

According to Evercore ISI analyst Omar Saad, that's because Nordstrom has been drowned in negative sentiment in recent months. That was due in large part to poor performance at its off-price Rack business, he said. And so in the latest quarter, Nordstorm made "baby steps," he said, which was more than enough to give shares of the retailer a massive lift.

That also means Nordstrom still has a lot of room to grow, particularly at the Rack business, where net sales still remain below 2019 pre-pandemic levels. Nordstrom's full-line department store business, for comparison, is essentially flat with that period, the company reported Tuesday.

As of Tuesday's market close, Nordstrom's stock had sold off over 30% in the past six months. Macy's stock is up 8%, and Kohl's stock is down less than 1% over that same timeframe. Nordstrom is also currently among the most heavily shorted stocks, with 22% of its shares available for trading sold short.

BMO Capital Markets analyst Simeon Siegel echoed Saad's sentiment. The analyst commended Nordstrom for ending the year much stronger than it started.

However, he said, BMO remains sidelined on recommending the stock because it's unclear whether Nordstrom will actually be able to achieve its full-year targets, or if they will end up being a "one-time achievement."

BMO's price target on Nordstrom shares is $30. The stock had closed Tuesday at $19.54.

During an earnings conference call, Nordstrom explained to analysts that the company's Rack division has had a harder time securing merchandise during the pandemic as supply chain obstacles have compounded. It relies on other apparel brands to offer excess inventory to sell at a discount, and there hasn't been much excess inventory to go around.

Nordstrom CEO Erik Nordstrom said on the call that the company recently made a "thorough analysis" of the Rack segment. Now, the company is working to raise brand awareness, improve its stock of merchandise, and offer a wider range of price points, he said.

"We are confident in our ability to profitably grow our Rack business and won't be satisfied until we do so," he said.

One of the biggest tailwinds that Nordstrom sees in the coming months is a recovery in shopper visits at its urban locations, which have lagged suburban locations due to a lack of international tourism.

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

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