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Why Nordstrom Stock Fell on July 10

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Nov. 20 2020, Updated 1:35 p.m. ET

Rating downgrade

Nordstrom (JWN) stock fell 2.7% on July 10 following a rating downgrade by KeyBanc Capital Markets. On July 10, KeyBanc Capital Markets lowered its rating for Nordstrom stock to “sector weight” from “overweight.” The downgrade reflected Amazon (AMZN) and other e-commerce retailers’ strength in the apparel space.

Nordstrom has been making significant investments to enhance its online capabilities. The company has invested in other growth initiatives to combat Amazon and other online retailers. However, the investments are putting pressure on the company’s margins.

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Nordstrom’s outlook

On July 10, Nordstrom provided a press release ahead of its Investor Day conference call. Nordstrom reiterated its sales and earnings guidance for fiscal 2018. Nordstrom expects its fiscal 2018 net sales to be $15.2 billion–$15.4 billion. The company expects its diluted EPS for fiscal 2018 to be $3.35–$3.55.

Nordstrom expects its net sales growth to be 3.0%–4.0% on an average annualized basis from 2017 to 2022.

YTD movement

As of July 10, Nordstrom stock has risen 9.9% on a YTD (year-to-date) basis. In comparison, Macy’s (M), JCPenney (JCP), and Kohl’s (KSS) stocks have risen 45.8%, -24.1%, and 31.3%, respectively, since the beginning of 2018. The S&P 500 Index has risen 4.5% on a YTD basis as of July 10.

Nordstrom exceeded analysts’ revenues and earnings expectations for the first quarter, which ended on May 5. However, investors were disappointed with the company’s dismal same-store sales growth of 0.6% in the first fiscal quarter.

Traditional brick-and-mortar retailers are taking several initiatives to improve their store traffic. However, more customers are shopping online due to convenience and attractive deals. Department stores are also facing intense rivalry from off-price retailers like TJX Companies (TJX) and Ross Stores (ROST). Off-price retailers are experiencing higher customer traffic due to the bargains that they offer.

Nordstrom aims to improve its sales through its off-price Rack business and more online penetration.

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