High-end department store Nordstrom Inc. has received an upgrade to a ‘buy’ from Jefferies, which said the chain’s wealthier customers were better insulated from a downturn and that it was best geared toward an “an upcoming wardrobe refresh” among younger shoppers.
However, the banking group downgraded Kohl’s Corp. to ‘hold’, saying the department store’s sales and margins needed to firm up. The analysts, which issued the ratings changes in a research note on Wednesday, kept their ‘buy’ rating on Macy’s Inc.
The analysts also lowered their per-share profit forecasts on those chains, citing “spending pressure risk” next year. Jefferies trimmed its 2023 earnings-per-share forecasts on Nordstrom and Macy’s to $2.85 and $3.96, respectively. They cut estimates for Kohl’s by 28% to $3.19.
But as concerns endure about consumer demand, they said Nordstrom was likelier to fare better than its department-store peers.
“We recognize we could be early, but the higher income consumer base is a structural advantage during economic downturns and excess inventory in the industry could benefit Rack merch issues more than expected,” Jefferies analysts Ashley Helgans and Blake Anderson said of Nordstrom in the note.
The analysts also boosted their price target on Nordstrom JWN, +1.28% to $24. Shares rose 2% on Thursday.
Jefferies also said a survey it conducted of 850 customers found that roughly 70% of Gen Z and Millennial respondents “indicated their wardrobes are out of style and plan to refresh their closets” over the next several months. Wealthier consumers that participated in that survey said they planned to spend more on clothing and shoes over the next six months.
Against that backdrop, the analysts said, Nordstrom was “best positioned to capture share of an upcoming wardrobe refresh,” adding that the chain’s customers tend to be younger and have more money than those at Macy’s M, +0.06% and Kohl’s KSS, +0.15%.
As for Kohl’s, Jefferies said the department store’s planned expansion of Sephora offerings made sense. But they said results and financial targets could be slower to materialize, given the current retail and economic backdrop. Kohl’s last month cut financial forecasts, after rising prices bit into demand among the chain’s middle-income customers.
Jefferies lowered its price target on Kohl’s to $29. The stock was down 0.3% on Wednesday. Macy’s added 0.3%.
Wall Street in recent months has focused on retailers’ abilities to manage inventories and costs, after surging inflation prompted customers to prioritize purchases of basic items like groceries and gasoline over things like clothing.
Nordstrom stock is down around 19% so far this year. Kohl’s is down 42% over that time, with Macy’s down 37%. The S&P 500 SPX, -0.75% is down 18% year to date.
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