Many investors had high hopes for the retail sector heading into this holiday season. Gas prices are extremely low and the job market is much improved, leaving more discretionary income in consumers’ pockets.
However, not all retailers have benefited from this trend, as it instead appears that several in the department store/apparel segment have been hit hard. Take for example Nordstrom (JWN – Analyst Report) which crumbled more than 20% following its recent earnings report.
JWN reported lackluster EPS of just 57 cents per share which was a huge miss from the analyst expectation of 71 cents per share. Additionally, gross profit margins fell and SG&A costs rose, while guidance also took a hit too.
In fact, the company now expects net sales to increase just 7.5%-8.0% (compared to earlier predictions of 8.5%-9.5% growth), while EPS guidance was severely cut as well. The EPS projection actually moved down to $3.32-3.42, a huge drop from previous guidance of $3.85-$3.95.
Unsurprisingly given these awful numbers, analysts have been racing to slash their estimates for JWN stock. Not a single estimate has gone higher in the past two months for JWN in any of the time frames we study, and current EPS growth projections for the year are now deep in contraction territory with an 8.4% decline projected.
And with Nordstrom inventory rising heading into the holiday season, many are worried about big discounts hitting merchandise in the weeks ahead too. Overall, it looks like a stock to avoid to close out 2015 and that’s why we have it as a Zacks Rank #5 (Strong Sell) right now.
Given the solid trading from some retailers lately and the continued dominance of Amazon (AMZN), you have to consider other retailers right now for exposure in this sector. After all, there are still many solid points for the economy but some haven’t been able to exploit these positives thanks to company specific issues.
One stock that might be a better choice this holiday season is American Eagle Outfitters (AEO – Analyst Report). This security reports in a few weeks and it has been seeing strong positive earnings estimate revisions as of late to go on top of an already robust earnings report history. Plus the stock is looking for EPS growth of nearly 54% this quarter and it is a Zacks Rank #1 (Strong Buy), making it a compelling selection for investors heading into the crucial holiday season, and a much better choice than JWN for now.
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