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Nordstrom Stock Tumbles on Lagging Sales, J.P. Morgan Price Target Cut

Nordstrom's sales, when compared to pre-pandemic levels, are lagging their retail peers, while supply-chain disruptions are adding to near-term uncertainty.

Nordstrom  (JWN) - Get Free Report shares fell sharply Wednesday after the retailer posted better-than-expected second quarter earnings that were clouded by supply chain concerns and lagging overall sales. 

Shares were also hit by a price target cut from JPMorgan, to $34 a share from $39, with the bank noting "the current backdrop is potentially 'as good as it gets' for the retailer's "$100K+ core household income customer."

Nordstrom said its flagship "Anniversary Sale" event notched sales that were only 1% above pre-pandemic levels recorded in 2019, a tally that contrasted with second quarter revenue growth of 101% from 2020 levels to a Street-beating $3.66 billion. Adding in concerns for "continued global supply chain backlogs for the balance of the year" also seemed to offset a full-year sales forecast boost, which Nordstrom said is likely to come in 35% higher than 2020 levels, up from a prior forecast of +25%.

"As far as (expenses are) concerned, we are anticipating headwinds on supply chain, primarily in freight costs, as well as some of the disruption we're seeing globally, as well as we've had some labor costs in certain markets as well," CFO Anne Bramman told investors on a conference call late Tuesday. "And so, we've baked that into our guidance for the second half of the year, and we're looking or constantly looking for offsets to that."

Nordstrom shares were marked 16.9% lower in late-morning trading Wednesday to change hands at $31.39 each, a move that would wipe out nearly all of the stock's year-to-date gains.

Nordstrom's second quarter bottom line was pegged at 49 cents per share, up from a loss last year of $1.62 per share and well ahead of the Street consensus forecast of 27 cents per share. Online sales rose 30%, the company said, while gross margins were flat compared to 2019 levels at 36.2%.

Its results also came amid a series of stronger-than-expected July quarter updates from retailers such as Best Buy  (BBY) - Get Free Report, Foot Locker  (FL) - Get Free Report, Macy's  (M) - Get Free Report and Kohl's  (KSS) - Get Free Report, all of which notched solid same-store sales growth and bullish near-term forecasts. 

The Commerce Department's July report on U.S. retail sales showed a bigger-than-expected 1.1% decline from the previous month, but also noted that clothing and clothing accessories sales were up 43.4% from last year to around $17.8 billion. 

"Nordstrom posted a solid 2Q, with results that augur well for the 2022 profitability targets," said KeyBanc Capital Markets analyst Edward Yruma, who carries an overweight rating with a $45 price target on the stock. 

"The second quarter is unlikely to satisfy the near-term bulls given the continued expense pressure, but we think the Company made continued progress against its long-term initiatives, and we think further reinforced its position as the premier multi-brand premium/luxury retailer," he added. "Momentum continues to accelerate, which reinforces our upward bias to earnings forecasts."