Stifel Cuts Nordstrom (JWN) to Hold; Near-Term Upside Limited on Long-Term Goals

February 21, 2014 8:08 AM EST
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Stifel is cutting its rating on Nordstrom (NYSE: JWN) from Buy to Hold and removing its $65 price target.

Analyst Richard Jaffe noted strong Q4 results from the retailer, but tempered outlook for FY14, which be believes was cautious given the current retail environment and the additional expenses related
to Canada expansion, technology investments and accelerated Rack pre-opening costs.


Jaffe also noted that management has taken a long-term view, recognizing that the retail world is changing rapidly and dramatically, and has adjusted its growth investments to be consistent with the
changing environment. Nordstrom has focused its efforts on the e-commerce business, the Rack off-price business and the new markets of Canada and New York City. These investments are different than prior investments and differ greatly from the investment in a new Nordstrom full-line store.


While Nordstrom is looking to bolster its investment in e-commerce, Jaffe cautioned that the segment has an accelerated depreciation and uncertain correlation to sales growth and increased profit contribution. While e-commerce presence is essential to the retailer's story, the trade-off has been lower physical store sales.

Nordstrom's off-price business has become key to the company's story, but Jaffe believes its accelerated roll-out incurs increased upfront, pre-opening costs, contributing to the more muted results anticipated for 2014.

On the company's expansion into Canada: Canadian retail real estate in prime locations is different than the US. There are fewer high quality locations and as a result they are costly; requiring upfront expenditures, build-out expenses and monthly rent to be paid. The analyst notes that population density is better around larger cities in Canada.


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