Shares of Nordstrom (JWN) were surging for the second straight day as retail dynamics begin to look better than feared.
Shares of the Seattle-based apparel retailer jumped in early morning hours, building on a Target (TGT) driven rally that pushed the stock up over 5% on Wednesday and consumer spending metrics encouraged optimism.
The move on Thursday morning comes after the company recorded earnings of 90 cents per share on revenue of $3.87 billion for the quarter ended August 3, cruising past bottom line estimates and coming only slightly short of the lowered bar on revenue.
"We delivered strong bottom-line results, demonstrating our inventory and expense discipline. We exited the quarter in a favorable inventory position and made important strides in productivity," co-president Erik Nordstrom told analysts Wednesday. "We're focused on driving our top-line, and while this can take time, we are confident in our ability to manage through cycles. We remain encouraged by our key initiatives, including our local market strategy, and are making good progress on key areas of focus that we believe will collectively drive increased value creation for our shareholders."
While sales sales were down 5.1% overall, with full-price falling 6.5% and off-price declining 1.9%, management expected an inflection soon as inventory levels come down and digital capabilities alongside its expansion into its key e-commerce market in New York City.
"Second quarter sales reflect a consistent traffic trend while conversion was softer relative to the first quarter," CFO Anne Bramman said. "Heading into the second half, we continue to take aggressive actions related to loyalty, digital marketing and merchandise. Our progress in the second quarter and plans for the second half give us confidence in our ability to turn around our current trend."
While the company cut its guidance for the second time this year, now setting forecasts at $3.25 to $3.50 per share for the full year, the bottom line beat appears to have overshadowed that action. The company had previously forecast $3.65 to $3.90 in EPS to start the year.
"In this dynamic retail environment, we are evolving our business to create a seamless shopping journey," Nordstrom said. "Our local market strategy leverages our physical and digital assets to provide greater access to merchandise selection with faster delivery and at a lower cost to us. This strategy focuses on gaining market share in our most important markets by leveraging inventory and increasing customer engagement through the services we offer."
He noted that digital customers placing pickup orders tend to spend twice as much which is crucial to the company's increased focus on the e-Commerce angle.
"We're focused on driving our top and bottom line results, and we are well positioned for the second half," Nordstrom added. "Nordstrom has managed through many cycles, and we will continue to evolve our business to better serve customers on their terms no matter how they choose to shop."
Many on Wall Street have been scooping up the value story as shares inflect from a forward PE multiple that trended below eight.
"While progress has been slower than initially anticipated, we still hold to our upgrade thesis that Nordstrom is well positioned in an omnichannel nvironment," Keybanc Capital Markets analyst Edward Yruma advised clients. "We believe JWN, with its powerful brand strength and a strong management team, is undervalued at current levels."
He noted that the stock is not only sitting at a paltry valuation historically, but highly undervalued compared to its peer group. As such, he retained his "Outperform" rating on the stock and set a $48 price target that could take shares back to the levels tread when the Nordstrom family mulled options to take the company private.
Even some more skeptical voices were encouraged by the earnings results as expectations eroded.
"We see Nordstrom's expense management and inventory discipline as impressive, and can see the long-term value opportunity taking shape with shares near historical-lows and valuation at unprecedented multiples," Wedbush analyst Jen Redding said. "We continue see long term value in shares of JWN, benefits from the company's unique limited distribution brand growth, localized market strategies, and leverage owing to a powerful omnichannel are taking longer than we initially expected."
Still, with the guidance cut and sales still sagging, she suggested there is time to wait before chasing the recent run.
"In the near term, we see any relative merchandise margin improvements as offset by occupancy cost deleverage, keeping us firmly sidelined as volatility in the department store space picks up surrounding soft traffic and a slow start to 3Q for the beleaguered department store peer group," Redding added. "Until we have greater visibility on Nordstrom's turnaround story, we remain 'Neutral' rated."
Indeed, the consensus rating on the stock remains 'Neutral' as many await a firm inflection before buying in bulk.