Why Nordstrom Stock Fell Hard This Week

What happened

Nordstrom (JWN -1.79%) shareholders lost ground to the market this week. The stock dropped 24% through Thursday trading compared to a 0.7% decline in the wider market, according to data provided by S&P Global Market Intelligence.

The department store retailer was pushed back into negative territory for the year after outpacing the S&P 500 through most of 2022. The decline was sparked by an earnings report that caught Wall Street by surprise.

So what

The company announced fiscal second-quarter results on Tuesday, which showed that sales rose 12% in the period that ended in late July. That result matched management’s forecast, yet demand trends took a turn lower at the end of the quarter.

“Customer traffic and demand decelerated significantly beginning in late June,” executives said in a press release. That news sent the stock lower because it signals a tougher second half ahead for fiscal 2022.

Now what

Nordstrom isn’t alone in dealing with a surprising demand slump in some categories. Major retailers including Walmart and Target have reduced earnings expectations in recent weeks to account for price cuts aimed at keeping inventory moving. Nordstrom is likely to see a similar bout of modest pressure. Sales are now on track to rise by between 5% and 7% this year, for example, rather than the prior outlook of between 6% and 8%. Adjusted profit margin will land below 5% of sales, too, rather than about 6% of sales.

These downgrades understandably pressured the retailing stock this week, but investors should try to focus instead on the bigger picture. Nordstrom’s long-term returns will be determined by its success at winning market share in areas like men’s and women’s apparel, both in stores and online.

Investments management is making today will determine where profitability lands in 2023 and beyond. Watch metrics like customer traffic and profitability for signs of success, or stumbles, in these areas.

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