Nordstrom Suffers a Joyless Holiday, but Should be Better Positioned in 2023; Shares Undervalued

Narrow-moat Nordstrom reported a 3.5% decline in its November and December sales, putting it on track to miss our flat forecast for the January-ending fourth quarter. Perhaps more significantly, discounting was higher than anticipated as the firm managed down its inventory, now projected to close 2022 at roughly 2019’s year-end level. We expect to cut our $42 fair value estimate by a mid-single-digit percentage, but view Nordstrom as very undervalued. While its recent underperformance in comparison with some others is worrisome, we believe its profitability has bottomed and that it can raise its operating margins back to approximately 6% within two years. Moreover, we anticipate it will continue to pay its dividend, which offers a current yield above 4%.