Short Selling

Hedge funds increase short bets against Nordstrom Inc

Nordstrom Inc
(JWN:US)
12 months:
-39.55%
Activity:
Bearish
Pattern:
Rising short interest
News:
Profit warning
Nordstrom Inc
(JWN:US)
12 months:
-39.55%
Activity:
Bearish
Pattern:
Rising short interest
News:
Profit warning

Short selling data can help active investors manage risk. Short sellers tend to be very smart, high-conviction traders. If they’re shorting a stock, there’s usually a good reason they are doing so.

In this report, we are going to examine short selling data on Nordstrom Inc (JWN:US). Nordstrom is a fashion retailer that operates predominantly in the US. Founded in 1901, it currently has more than 350 stores, and also operates online. It is listed on the New York Stock Exchange and has a market cap of $2.97 billion at present.

Nordstrom Inc: short interest data

Looking at the short selling data on Nordstrom, we see a couple of red flags. The first is that short interest is high. Right now, 22.3 million Nordstrom shares are on loan. That represents about 19.849% of the free float.

The second is that the number of shares on loan has spiked recently. Back on August 24, only 8.5 million shares were on loan. So, in a little over a month, the number of shares on loan has increased by roughly 170%. This is concerning, in our view. Research has shown that sharp spikes in short interest tend to be followed by share price weakness.

Lower demand from consumers

It’s not hard to see why the short sellers are targeting Nordstrom right now. In the current environment, consumers are cutting back on discretionary spending and this is hitting clothing retailers hard.

In August, Nordstrom cut its full-year profit guidance after lower demand from customers left it with excess inventory that will require steep discounts to move on. As a result of the lower level of demand, the company said that it now expects adjusted profit per share of between $2.30 and $2.60, versus previous guidance of $3.20 to $3.50. On the back of this profit warning, a number of brokers slashed their price target for the stock. It’s possible that the short sellers expect further profit warnings in the quarters ahead.

Short sellers may also be looking at the company’s leverage. As of July 30, 2022, Nordstrom had long-term debt of $2.85 billion on its books. By contrast, total shareholders’ equity was just $663 million. With interest rising rapidly, this debt is going to become more expensive to service. It’s worth noting that Nordstrom currently has an Altman Z2-Score of -0.02, which indicates a serious risk of financial distress within the next two years.

Given the sharp rise in the short interest here, we think caution is warranted towards the stock at the moment.

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