High-end department store chain Nordstrom (NYSE:JWN) impressed investors by reporting an unexpected profit in the first quarter of Fiscal 2023 (ended April 29, 2023). Despite lower revenue, the company’s bottom line improved due to better inventory control, efforts to enhance its off-price Nordstrom Rack business, and supply chain optimization. Shares jumped nearly 7% in Wednesday’s extended trading session.
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JWN’s Market-Beating Q1 Results
Nordstrom swung to an adjusted earnings per share (EPS) of $0.07 in Q1 FY23 from a loss per share of $0.06 in the prior-year quarter, crushing analysts’ expectation of a loss per share of $0.10. Revenue declined about 11% to $3.18 billion, reflecting the impact of macro challenges on consumer spending and the company’s decision to wind down its Canadian operations. However, revenue surpassed analysts’ estimate of $3.12 billion.
Sales at the company’s Nordstrom namesake stores declined 11.4%, while sales of the Nordstrom Rank banner fell 11.9%. During the Q1 earnings call, CEO Erik Nordstrom said the company’s first priority is to improve the performance of Nordstrom Rack.
Increased penetration of top-performing brands helped improve Rack sales trends, with April being the best month in Q1 FY23. The CEO added that trends continued to improve in May. He highlighted that Rack stores are the largest source of new customers for Nordstrom and generate returns that exceed the company’s cost of capital.
Meanwhile, Nordstrom kept its full-year guidance intact and expects revenue to decline in the range of 4% to 6%. Adjusted EPS is projected between $1.80 and $2.20.
Nordstrom has been struggling to improve its sales due to macro pressures, supply chain woes, and intense competition from online retailers. The company’s weak performance drew pressure from activist investor Ryan Cohen, founder of Chewy (CHWY) and chairman of GameStop (GME). Cohen bought a stake in the company earlier this year.
Is Nordstrom a Good Stock to Buy?
Goldman Sachs analyst Brooke Roach increased the price target for JWN stock to $18 from $17 following the Q1 results on Wednesday. Roach is “incrementally encouraged” by the progress made by the company on its strategic priorities, given the improved gross margin due to inventory productivity, better sales trends at Rack, and supply chain efficiencies.
However, the analyst maintained a Hold rating due to the ongoing softness in the company’s designer business.
Overall, Wall Street has a Hold consensus rating on Nordstrom based on one Buy, nine Holds, and four Sells. The average price target of $17.54 implies 14.6% upside.
