2 retail stocks for your watchlist

The retail sector results are mixed and reveal a shift in consumer habits that will impact results for the rest of the year. Actions like Ross Stores NASDAQ: ROST AND Nordstrom New York Stock Exchange: JWN they have a strong trend for this reason, but not in the same direction. The bottom line from the fourth quarter results is that one is growing and delivering value while the other is struggling.

The dilutive effects of an increased share count weigh on Nordstrom’s price action despite signs of operational improvements and an outlook that includes a return to growth. On the other hand, Ross Stores’ capital return program is stronger than ever and it is on track to reduce its share count by another 2% this year. This year, its stock price will likely reach new highs thanks to growth, analyst support and capital returns.

Ross Stores: Off-Price Retail Is Strong in 2024

Ross Stores’ fourth-quarter results further demonstrate that off-price retail is hot in 2024. The company reported revenue of $6.02 billion, a 15.5% increase over last year. Even accounting for the extra week, the 7% compensation is about double the industry average for the holiday quarter. Both reported and overall sales are above consensus and compounded by a wider margin. The company expanded its operating margin by 165 basis points to drive accelerated 39% growth in profits. GAAP earnings of $1.82 also beat the Marketbeat.com consensus by $0.17.

Meanwhile, Nordstrom delivered growth, but the reported 2.3% gain is tepid and offset by the extra week. Taking this into account, sales fell 2%, led by the core brand. Nordstrom Rack, the off-price brand, grew 14% and should help support the business this year. Nordstrom also expanded margin, but most of the improvement occurred at the gross level. Gross margin improved by 125 basis points and was offset by higher expenses, leaving the EBIT margin wider by just 50 basis points. Bottom line, the adjusted $0.96 beat $0.07.

Orientation is another area of ​​discrepancy between these professions. Ross Stores is guiding for growth, with comps rising 2% to 3% and margins widening, while Nordstrom’s guidance is less solid. A 2% contraction to 1% growth is expected.

Both pay dividends: Ross Stores is much more attractive

Both stocks pay dividends, but Ross Stores’ capital returns are much more attractive. Not only did it resume distributions more quickly than Nordstrom following the COVID-19 crisis, but it resumed at a higher pace and has been growing ever since. The yield is lower but safer, at 26% of revenue, and there are share buybacks to boost the yield.

Nordstrom’s payment was reinstated later, at a lower rate, and there are no favorable prospects for substantial increases anytime soon. Ross Stores increased its payout by 10% for 2024 and its share repurchase authorization by 11%. The new approval is worth $2.1 billion over the next two years and is expected to reduce the number of shares by 2% annually. Nordstrom’s count rose 1.8% to the end of 2023 and could rise this year, adding more weight to the market.

Analyst sentiment takes these stocks in opposite directions

Analyst sentiment plays an important role in the performance of both stocks. Analysts rate Nordstrom at Reduce and have significantly lowered their price targets over the past year, driving the stock price lower. Sentiment has stabilized somewhat since the Q4 release, so a new low may not be reached, but current lows could be tested again. The market sent a decidedly bearish signal following the release and will likely follow suit.

Ross Stores struggles to maintain traction following its release, but will likely move higher. Analysts have pegged this stock at Moderate Buy and are raising their price targets, with most of the new targets above the $155 consensus. The consensus calls for a 5% upside, but is driven higher by revisions ; Citigroup set a new high target of $172, a 20% rise from the new low.

Before you consider Ross Stores, you’ll want to hear this.

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