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Nordstrom focused too much on cocktail dresses and ball gowns, driving holiday sales down 22%, analyst says

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Nordstrom Inc.
JWN,
-2.62%

shares fell 3.8% in Thursday morning trading after the luxury department store retailer said holiday season sales sank 22%.

Nordstrom is largely an apparel retailer, a category that has taken a hit during COVID-19.

But even taking that focus into account, Neil Saunders, managing director at GlobalData Retail, says the company didn’t sell the right merchandise during these pandemic times.

“[G]iven that the company had almost a year to adjust to the pandemic, we were disappointed with the predominance of high-fashion garments – including cocktail dresses and ball gowns – on the shop floors of most stores,” he wrote.

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“These items were completely inappropriate for this holiday season and did nothing to convert browsers into buyers. If Nordstrom had skewed its range, even a little, to cozy apparel and athleisure then it may well have been able to generate marginally better numbers.”

Still, Erik Nordstrom, the company’s chief executive officer, said in a statement momentum was building during the nine-week period leading up to Jan. 2, 2021, and that the momentum has continued after the holiday season.

Nordstrom is getting help from its digital business, which was up 23% and represented 54% of total sales.

“[W]hile we recognize that Nordstrom’s online business is more mature than many other players, we cannot help but note that the company’s digital growth is well below the market average which means it lost share even online,” Saunders said.

“Again, this mostly comes down to an offer that is out of kilter with demand. “

UBS analysts say the department store could be getting a post-holiday boost from stimulus checks that are hitting consumer bank accounts, but said that could be temporary.

Also: Target’s holiday sales show the importance of stores even as COVID-19 drives business online

” [C]ompanies are seeing month-over-month improvement in January. We think this is due to stimulus,” wrote analysts led by Jay Sole.

UBS estimates that $112 billion of the expected $166 billion in payments have been sent out.

“January gains may be masking underlying weakness, in our view. This means the set up for 1Q21 could be unfavorable as stimulus wears off and the pace of vaccine distribution remains slower than hoped-for,” analysts said.

UBS rates Nordstrom stock sell with an $11 price target.

Still, JPMorgan analysts note that Nordstrom’s e-commerce business puts them in a better position than competitors in the ailing department store sector.

“[W]e note Nordstrom is relatively better positioned than department store peers given higher e-commerce penetration (equal to one-third of sales in 2019 versus peers ~20%),” analysts wrote.

JPMorgan rates Nordstrom stock neutral with a $32 price target.

Nordstrom stock has soared nearly 174% over the last three months, but is down 12.8% for the past year.

The benchmark S&P 500 index
SPX,
+0.18%

is up 16.3% for the last 12 months.