Nordstrom inventories collapse after supply chain difficulties hit low-cost rack chain high-end inventory

Nordstrom Inc. intends to topple its low-cost Rack banner, which struggles to find high-end branded merchandise that customers are looking for.

Shares of the luxury department store retailer fell 29% on Wednesday after reporting a third-quarter shortfall. Supply chain challenges add to business woes, with low inventory levels of women’s clothing and footwear at Nordstrom Rack, but there’s more to it.

“While many retailers face supply chain disruptions related to macroeconomics, Rack faces a unique challenge, as sourcing the same big brands at low prices that we carry at Nordstrom is particularly difficult. in an environment with production constraints and lower liquidation levels, ”said Erik Nordstrom, chief executive of the company, according to a FactSet transcript of the earnings conference call.

The shortage also penalized the average retail unit (AUR), which is down 4% from 2019.

Read: Missing inventories plunge as supply chain disruptions expected to lead to up to $ 650 million in lost sales

Overall, Nordstrom Rack saw sales up 35% from 2020, but down 8% from 2019.

The company is making adjustments to its inventory strategy to compensate for the lack of high-end products available, but analysts cannot agree on how optimistic Nordstrom’s JWN is,

JPMorgan analysts maintained their underweight in equities, noting that the company should benefit from the ideal position in which “Nordstrom’s main client with $ 100,000 + family income currently finds itself” and the pricing environment and advantageous promotional.

“Overall, Nordstrom remains an absolute and relative underperformance in a favorable retail environment with notable third quarter results relative to its peers,” analysts said.

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

Cowen analysts are not so pessimistic, with a strong stock rating. But analysts there also lowered their price target from $ 35 to $ 27.

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“In our view, the main concerns and opportunities include improving execution at Rack in inventory and assortment management, optimizing overhead and administrative costs, and working creatively on logistics and delivery challenges. stock flow, ”wrote analysts led by Oliver Chen.

“We are cautious that Nordstrom loses buyers and portfolio shares to better-executed retailers, and going forward it may be difficult to win back buyers.”

KeyBanc Capital Markets assesses the overweight position in Nordstrom stocks with a price target of $ 45. Analysts note inventory issues and say the company is improving the efficiency of its operations.

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

GlobalData believes Nordstrom can also improve its fortunes by simply cleaning out its stores.

“Stores that were once neat and disciplined are now a messy mishmash with stocks from different seasons creating a crowded and unpleasant experience,” wrote Neil Saunders, Managing Director of GlobalData, in a note.

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“This type of environment, which is more akin to Macy’s, is just not conducive to selling the premium products and brands that Nordstrom is famous for. In our opinion, the sprouting presentation is a sign that Nordstrom has lost control over its physical activity – where the sales results are even worse than the headlines, as digital generates double-digit growth. “

Nordstrom stock has fallen 27.1% for the year to date while the benchmark S&P 500 SPX,
+ 0.09%
gained nearly 25% over the period.

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