By Tonya Garcia

Nordstrom stock sinks nearly 30% after a third-quarter earnings miss, analyst says the shops have become a 'messy hodge-podge'

Nordstrom Inc. has plans to turn around its off-price Rack banner, which is having problems finding merchandise from the premium brands that customers crave.

Shares of the luxury department-store retailer fell nearly 30% in Wednesday trading after reporting a third-quarter earnings miss. The 29.1% decline was easily the largest in the stock's 49-year trading history, surpassing a 20.4% decline in March 2020, and erased nearly $1.5 billion in market capitalization. Nordstrom (JWN) shares fell to $22.26, their lowest close in almost exactly a year, since Nov. 20, 2020.

Supply-chain challenges are adding to the company's problems, with low inventory levels in women's clothing and shoes at Nordstrom Rack, but there's more to it than that.

"While many retailers are dealing with macro-related supply-chain disruptions, Rack faces a unique challenge as off-price procurement of the same top brands we carry at Nordstrom is particularly difficult in an environment with production constraints and lower levels of clearance product," said Erik Nordstrom, chief executive of the company, according to a FactSet transcript of the earnings conference call.

The shortage also hurt the average unit retail (AUR), which is down 4% compared with 2019.

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Overall, Nordstrom Rack reported sales that were up 35% compared with 2020, but down 8% versus 2019.

The company is making adjustments to its inventory strategy to make up for the shortfall in available premium goods, but analysts can't agree on how upbeat to be about Nordstrom's prospects.

JPMorgan analysts maintained their underweight stock rating, noting that the company should be getting a boost from the ideal position that "Nordstrom's $100K+ core household income customer" is currently in, and the beneficial pricing and promotional environment.

"Larger picture, Nordstrom remains an absolute and relative underperformer in a supportive backdrop for retail with notable 3Q results vs. peers," the analysts said.

JPMorgan lowered its price target to $23 from $27.

Cowen analysts aren't as downbeat, with a market perform stock rating. But analysts there also cut their price target, down to $27 from $35.

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"In our view, top concerns and opportunities include improving execution at Rack across inventory management and assortment, optimizing SG&A, and creatively working through logistics and inventory flow challenges," wrote analysts led by Oliver Chen.

"We are cautious Nordstrom is losing shoppers and wallet share to better executing retailers, and looking ahead could see challenges winning shoppers back."

KeyBanc Capital Markets rates Nordstrom stock overweight with a $45 price target. Analysts note the inventory problems and say the company is driving efficiencies in its operations.

"We believe Nordstrom, with its powerful brand strength and strong management team, is undervalued at current levels," analysts said.

GlobalData thinks Nordstrom can also improve its fortunes by simply cleaning up its stores.

"Shops which were once neat and disciplined are now a messy hodge-podge with stock from a variety of seasons creating a cluttered and unpleasant experience," wrote Neil Saunders, managing director of GlobalData, in a note.

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"This kind of environment, which is more akin to Macy's, is simply not conducive to selling the premium products and brands that Nordstrom is renowned for. In our view, presentation going to seed is a sign that Nordstrom has lost the grip on its physical business -- where sales results are even worse than the headline numbers because digital is generating double digit growth."

Nordstrom stock has tumbled 27.4% for the year to date while the benchmark S&P 500 index has gained 25.2% for the period.

-Tonya Garcia