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Nordstrom’s Stock Underperformed Other Off-Price Retailers

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Stock price movement

As of November 4, Nordstrom’s (JWN) stock price has fallen by 11.3% to $66.42 since the announcement of the company’s 2Q15 results on August 13. Nordstrom exceeded the consensus analyst earnings and sales estimates in 2Q15. However, the company’s adjusted earnings, excluding the impact of one-time items, declined by 2.1% as higher sales in the quarter were offset by the company’s growth investments.

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Year-to-date price movement 

As of November 4, Nordstrom’s stock price has fallen by 15.2% since the start of 2015. The stock prices of department store peers Macy’s (M), Kohl’s (KSS), and Dillard’s (DDS) have fallen by 23.2%, 22.5%, and 27.0%, respectively, since the start of this year.

The portfolio holdings of the Consumer Discretionary Select Sector SPDR Fund (XLY) have 0.4% exposure to Nordstrom. The XLY ETF has surged by 13.2% since the beginning of this year. Nordstrom has also underperformed the S&P 500 Index, which has appreciated by 2.1% since the start of 2015. The iShares Russell Mid-Cap Growth ETF (IWP) has 0.3% exposure to Nordstrom.

Comparison with off-price retailers

In contrast to Nordstrom, stock prices of off-price retailers TJX Companies (TJX) and Ross Stores (ROST) have increased by 8.4% and 10.1%, respectively, since the start of 2015. Nordstrom competes with off-price retailers through its Rack stores. TJX Companies and Ross Stores have an extensive presence in the off-price space compared to Nordstrom Rack stores. As of August 1, 2015, Nordstrom had 178 Rack stores while TJX Companies and Ross Stores had 2,629 and 1,424 stores, respectively, in the US. TJX Companies has off-price stores in Canada and Europe also.

Though Nordstrom’s sales growth rate surpassed TJX Companies and Ross Stores in 2Q15, the company’s adjusted earnings growth underperformed the two off-price retailers. As mentioned previously, Nordstrom’s adjusted EPS (or earnings per share) fell by 2.1% in 2Q15. The adjusted EPS of TJX Companies rose by 6.7% to $0.80 in the comparable second quarter, driven by increased sales. The adjusted EPS of Ross Stores increased by 12.5% to $0.63 in 2Q15, primarily due to higher sales.

Weakness in Nordstrom’s earnings has been adversely impacting its stock price and valuation. The next part of this series discusses the company’s valuation.

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