Nordstrom drops despite earnings beat, analysts say Rack's recovery will take time

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By Senad Karaahmetovic

Shares of Nordstrom (NYSE:JWN) are down nearly 10% in pre-market Wednesday despite the company cutting its full-year guidance.

For the third quarter, Nordstrom reported an EPS of $0.20 on revenue of $3.5 billion to beat the average analyst estimate of $0.13 on sales of $3.47B. Overall, revenue declined nearly 3% year-over-year.

"When customer demand decelerated in late June, we took action to align inventory and expenses with the changing trends, which has prepared us to navigate the current macroeconomic environment," said Erik Nordstrom, CEO of Nordstrom.

On a full-year basis, JWN said it expects EPS to come between $2.30 and $2.60, higher than the consensus of $2.37. The company also sees revenue growth between +5% and +7% while the adjusted Ebit margin is expected in the range of 4.3-4.7%

Barclays analysts reiterated an Underweight rating and an $18 per share price target on JWN stock after earnings.

"We believe Rack's recovery is likely to take time in rebalancing the assortment towards more premium products. Additionally, we see risks into next year on continued inflationary cost pressure despite optimization initiatives," the analysts said in a client note.

KeyBanc analysts are much more positive on JWN as they said the Q3 results showed inventory position is improving. The analysts believe JWN is trading at an attractive valuation.

"JWN posted top and bottom-line beats and maintained FY guidance amid a difficult retail environment. Importantly, JWN continues to make progress on its inventory position (+0.5% y/y), positioning JWN well for 4Q, and the Company expects to end the year with clean inventory, which we think will position JWN well heading into FY23 relative to many peers," the analysts wrote.

"We remain confident in management's ability to improve Rack performance as JWN makes progress optimizing brand mix, and maintain that JWN possesses LT margin opportunity via supply chain initiatives," they added.