Several brick-and-mortar retailers recovered considerably in 2021 after suffering brutal losses during the initial phase of the COVID-19 pandemic.
However, supply chain disruptions, labor shortage and inflationary pressures made the recovery difficult. These headwinds are likely to persist this year as well.
Per the U.S. Department of Commerce, retail sales rose 0.3% month-over-month in February, compared to the stronger-than-expected 4.9% growth in January.
Against this backdrop, let’s see what Wall Street analysts think Nordstrom (NYSE: JWN) and TJX Companies (NYSE: TJX), and compare the two stocks.
Nordstrom
Nordstrom operates over 350 stores essentially under the Nordstrom and Nordstrom Rack (off-price locations) banners. It also has a strong digital presence, comprising Nordstrom and Rack apps and websites.
Nordstrom’s results for Q4 2021 (ended January 29, 2022) and the outlook for Fiscal 2022 impressed investors, and led to a 38% jump in the shares on March 2. The retailer’s fourth-quarter revenue (including retail sales and credit card revenue) increased 23.1% to $4.49 billion, exceeding analysts’ forecast of $4.36 billion.
Both Nordstrom and Nordstrom Rack registered 23% sales growth in the quarter. While sales of Nordstrom were flat compared to Q4 2019, Rack sales continued to be lower than pre-pandemic levels.
The company stated that following a thorough analysis of Nordstrom Rack business last quarter, it increased inventory levels and improved average price points in the stores.
Digital sales declined 1% year-over-year in the fourth quarter, but still accounted for 44% of total sales.
Nordstrom’s robust top-line growth helped its Q4 adjusted EPS surge to $1.23 from $0.21 in the prior-year quarter, and beat analysts’ forecast of $0.99.
Looking ahead, Nordstrom expects revenue growth of 5%-7% in Fiscal Year 2022 and EPS of $3.15-$3.50, compared to revenue growth of 38% and EPS of $1.10 in Fiscal Year 2021.
Following the print, Guggenheim analyst Robert Drbul raised his earnings estimates for FY 2022 and FY 2023. Drbul cited solid fiscal Q4 results, the company’s focus on improving the off-price Rack business, efforts to enhance profitability through improvement in merchandise margin, and initiatives to optimize supply chain and inventory flow as the reasons for the better outlook.
Despite the recovery in business, Drbul noted that Nordstrom continues to underperform on various metrics relative to its competitors.
As a result, Drbul reiterated a Hold rating on Nordstrom stock, saying that shares are fairly valued. The analyst did not provide any price target for the stock.
The rest of the Street is also sidelined on Nordstrom stock, with a Hold rating based on one Buy, 10 Holds and two Sells. The average Nordstrom price target of $27.67 implies 5.7% upside potential from current levels. Shares have advanced 9.2% so far this year.
TJX Companies
Leading off-price retailer TJX Companies has over 4,600 stores in the U.S., Canada, UK, Ireland, Germany, Poland, Austria, the Netherlands, and Australia.
Although the company has five e-commerce sites, it essentially generates bulk of its sales from T.J. Maxx, Marshalls, HomeGoods, Sierra, and Homesense stores.
TJX sells apparel and home merchandise at discounted prices compared to department stores, and other retailers. The company obtains its inventory at substantial discounts by taking advantage of closeouts, order cancellations, and manufacturer overruns.
E-commerce accounts for a very small proportion of TJX’s overall sales, which is why the closure of stores amid lockdowns had a significant impact on the company’s business.
Following the reopening of stores, pent-up demand drove a 51% rise in the company’s net sales to $48.5 billion in Fiscal Year 2022 (ended January 29, 2022).
The company’s Q4 results improved year-over-year, but fell short of the Street’s expectations. Revenue increased 27% to $13.9 billion and EPS rose to $0.78 from $0.27 in the prior-year quarter. Analysts were expecting sales of $14.2 billion and EPS of $0.90.
The company cited the surge in Omicron variant cases, higher freight costs and wage pressures as the headwinds that impacted the quarter’s performance.
For the current fiscal year, TJX expects U.S. comparable store sales to grow 3% to 4% over the 17% growth seen in Fiscal 2022. The company did not provide earnings guidance given the uncertainty around elevated expense pressures.
Drbul feels that the impact of incremental freight costs will be highest in the first quarter of the current fiscal year.
However, TJX’s pricing actions coupled with the potential to see easing freight expense levels make Drbul optimistic about the company’s ability to return to near double-digit margins in the upcoming quarters.
Drbul acknowledged short-term pressures on the retail sector but continues to believe that consumers are seeking value in the current environment, and favor the treasure hunt experience that off-price stores offer.
As a result, Drbul reaffirmed a Buy rating on TJX stock, but lowered the price target to $80 from $85.
TJX believes that it can grow its store base to 6,275 stores over the long-term. In FY 2023, the company plans to open about 170 new stores, remodel over 400 stores, and relocate more than 50 stores.
TJX scores a Strong Buy consensus rating, backed by 15 Buys and two Holds. The average TJX Companies price target of $79.06 indicates 32.9% upside potential from current levels. Shares are down 21% year-to-date.
Conclusion
Although near-term inflationary pressures and supply chain woes might weigh on both TJX and Nordstrom’s performance, a majority of Wall Street analysts seem to be more confident about TJX companies’ prospects over the long term.
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