Results from the retail sector are a mixed bag, revealing shifting consumer habits that will impact results for the remainder of the year. Stocks like Ross Stores (NASDAQ: ROST) and Nordstrom (NYSE: JWN) are trending strongly because of it, but not in the same direction. The takeaway from the Q4 results is that one grows and delivers value while the other struggles. 

The dilutive effects of a higher share count weigh Nordstrom's price action despite signs of operational improvements and an outlook that includes a pivot back to growth. On the other hand, Ross Stores' capital return program is as solid as ever and is on track to reducing its share count by another 2% this year. This year, its share price will likely set new highs because of growth, analysts' support, and capital returns. 

Ross Stores: Off-Price Retail is Strong in 2024

Ross Stores Q4 results further prove that off-price retail is hot in 2024. The company reported $6.02 billion in revenue, a gain of 15.5% over last year. Even adjusting for the extra week, the 7% comp is about double the industry average for the holiday quarter. Both reported and comp sales are above consensus and compounded by a wider margin. The company widened its operating margin by 165 basis points to drive accelerated growth of 39% on the bottom line. The $1.82 in GAAP earnings also outpaced the Marketbeat.com consensus by $0.17. 

Meanwhile, Nordstrom produced growth, but the reported 2.3% gain is tepid and offset by the extra week. Accounting for it, sales fell 2%, led by the core brand. Nordstrom Rack, the low-price label, advanced by 14% and should help sustain business this year. Nordstrom also widened the margin, but most of the improvement was at the gross level. The gross margin improved by 125 basis points and was offset by increased expenses, leaving the EBIT margin only 50 bps wider. On the bottom line, the adjusted $0.96 beat by $0.07. 

Guidance is another area of discrepancy between these trades. Ross Stores is guiding for growth, with comps up 2% to 3% and margins widening, while Nordstrom’s guidance is less robust. It is guiding for a 2% contraction up to 1% growth.

Both Pay Dividends: Ross Stores is Far More Attractive 

Both stocks pay dividends, but Ross Stores' capital returns are far more attractive. Not only did it resume distributions quicker than Nordstrom following the COVID-19 crisis, but it was reinstated at a higher rate and has increased since. The yield is less but safer at 26% of revenue, and there are share repurchases to compound the return. 

Nordstrom’s payment was reinstated later, at a lower rate and does not have a favorable outlook for substantial increases soon. Ross Stores increased its payment 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 share count by 2% annually. Nordstrom’s count is up 1.8% at the end of 2023 and may increase this year, adding more weight to the market.

Analysts Sentiment Leads These Stocks in Opposite Directions

The analysts' sentiment plays into the trend in both stocks. Analysts rate Nordstrom at Reduce and have lowered their price targets significantly over the last year, leading the stock price lower. Sentiment firmed slightly following the Q4 release, so a new low may not be reached, but the current lows may be retested. The market threw a solidly bearish signal following the release and will likely follow through. 

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