What Happened:

Shares of luxury department store chain Nordstrom (NYSE:JWN) fell 8.8% in the morning session after the company reported third quarter results with revenue missing analysts' expectations, while its gross merchandise volume ("GMV") fell by 7.1%. Management highlighted "continued uncertainty and softening consumer spend," and the wind-down of Canadian operations also affected sales metrics. Despite operating income and earnings per share (EPS) surpassing expectations, the negative free cash flow, which was below analyst forecasts, contributed to an overall weaker quarter for the company. To add insult to injury, this weak performance comes in light of some impressive performance in retail. There have been department store peers like M (Macy's), specialty retailers like GPS (The Gap), and off-price concepts such as ROST (Ross Stores) that reported impressive results in the previous two weeks.

The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks. Is now the time to buy Nordstrom? Access our full analysis report here, it's free.

What is the market telling us:

Nordstrom's shares are very volatile and over the last year have had 25 moves greater than 5%. In context of that, today's move is indicating the market considers this news meaningful but not something that would fundamentally change its perception of the business. 

The biggest move we wrote about over the last year was 3 months ago, when the company dropped 7.5% on the news that Macy's, a key competitor, reported disappointing second-quarter earnings, with revenue coming in below Wall Street's expectations. In addition, both earnings per share (EPS) and EBITDA missed analysts' estimates by a wide margin due to inventory shrinkage. This shrinkage (caused by clerical error, goods being damaged, lost, or stolen) led to a decline in profits. Macy's also lowered full-year EPS guidance, which came in below consensus estimates. Given the similar retail landscape that both Macy's and Nordstrom inhabit within the department store segment, the weak earnings could be a harbinger of broader challenges on the horizon.

Nordstrom is down 9.3% since the beginning of the year, and at $14.30 per share it is trading 45.8% below its 52-week high of $26.38 from February 2023. Investors who bought $1,000 worth of Nordstrom's shares 5 years ago would now be looking at an investment worth $277.41.

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