Tough Quarter for the Department Stores

Nordstrom (Ticker Symbol: JWN) released mixed earnings and revenues for the quarter.  The luxury department store reported an earnings per share beat of .90 cents per share vs. Wall Street analysts’ expectations of .75 cents per share.  However, the Seattle, Washington-based company reported a slight revenue miss of $3.87 billion vs. Wall Street analysts’ expectations of $3.93 billion.  Additionally, Nordstrom lowered its earnings guidance for the year from $3.25-$3.50 per share, which is down from $3.25 to $3.65 it had previously guided.  

Macy’s (Ticker Symbol: M) released quarterly earnings per share results that were much weaker than analysts were expecting.  The American department store chain founded in 1858, reported an earnings per share miss of .28 cents per share vs. Wall Street analysts estimates of .45 cents per share.  Macy’s released revenue that was slightly better than expected at $5.546 billion vs. Wall Street analysts’ expectations of $5.542 billion. Same-store sales reported were a slight miss at up .03% vs. up .04% which is what Wall Street was looking for.    

Above is a chart of the past three years of Macy’s stock in yellow, Nordstrom’s stock in the red and green candles, and the S&P 500 in the purple.  As you can see from the chart above, the retailer’s stock and the overall market have not had a strong correlation over the past 36 months. After having a lackluster correlation at the end of 2016 and into 2017, Macy’s, Nordstrom, and the S&P 500 came together and began to trade nearly in tandem for almost a year.  The strong correlation between retailers and the market came to a swift end at the beginning of 2019. The S&P 500 has been on a tear so far for the year up over 15% trading to an all-time high on July 26th. The retailers have not been so fortunate. Currently, Macy’s is down over 45% year-to-date, while Nordstrom is down 37% year-to-date.  

(Chart above courtesy of ​www.tipranks.com​)  

Based on a survey of six analysts offering 12-month price targets, the average price target for Macy’s stock is $18.00. According to that number, the stock is priced at a discount relative to Wall Street’s analysts and could be considered undervalued around current levels near $14.37.

(Chart above courtesy of ​www.tipranks.com​)  

Based on a survey of 11 analysts offering 12-month price targets, the average price target for Nordstrom’s stock is $32.90. According to that number, the stock is priced at a discount relative to Wall Street’s analysts and could be considered undervalued around current levels near $27.89. 

As you can see from the chart above, money managers that have been in the retail space have been underperforming the stock market drastically so far this year. Fund flow can often shift however, oftentimes asset managers look to underperforming sectors to catch up to the market in the remainder of the year.  Will Macy’s and Nordstrom catch up to the S&P 500’s performance? Investors in the retail space should look out to Nordstrom’s next earnings release on November 17th for fresh news within the sector. 

 


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