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https://www.barrons.com/articles/stock-market-movers-apple-amazon-google-ford-51675354870
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Craig Barritt/Getty Images for Nordstrom
If
Nordstrom’s
latest sales update is anything to go by, high-income shoppers are finally starting to feel the pinch of a slowing economy.
The luxury department store, whose product lineup is aimed mainly at wealthier people, said late on Thursday that holiday sales were softer than hoped. It is the latest retailer to warn that consumers took a more cautious approach to holiday shopping in 2022.
“The holiday season was highly promotional, and sales were softer than prepandemic levels,” said CEO Erik Nordstrom in a news release late Thursday. “While we continue to see greater resilience in our higher income cohorts, it is clear that consumers are being more selective with their spending given the broader macro environment.”
Shares of Nordstrom (ticker:
JWN
) were largely unchanged in early Friday trading, with a gain of 0.1% to $17.47.
The company also updated its financial forecasts for fiscal 2022, the 12 months ending January 2023. It now expects revenue growth to be at the low end of the range of 5% to 7% it had forecast. Holiday sales fell by 3.5% in 2022, driven by a 7.6% decline in the company’ Nordstrom Rack banner and a 1.7% decrease in core Nordstrom sales.
Nordstrom also said that the need to sell off outdated inventory weighed heavily on profit and margins. Adjusted earnings per share will range between $1.50 and $1.70, compared with the company’s prior call for $2.30 to $2.60. The consensus call among analysts surveyed by FactSet was for earnings to land at $1.81 for fiscal 2022.
Adjusted earnings before interest and taxes margin will be 3.1% to 3.3%, compared with the 4.3% to 4.7% management had predicted.
While costly to the bottom line, discounting heavily during the holiday season may actually be better for Nordstrom in the long run. The company expects year-end inventory levels to be down by a double-digit percentage compared with last year, putting them roughly at 2019 levels.
“We believe this reduction, coupled with cleaner inventory (~flat to 2019), may actually have been better than feared,” wrote BMO Capital Markets analyst Simon Siegel in a research note. Siegel maintained a Market Perform rating and trimmed his target for the stock price to $20 from $23.
Still, it isn’t an easy time to be a department store. Nordstrom’s announcement comes weeks after
Macy’s
provided investors with a similar update, saying sales would come in at the low to middle end of the range it had forecast as a result of unexpected lulls in demand outside of the peak shopping weekends.
On Wednesday, the Census Bureau reported that department stores’ retail sales fell by 6.6% in December from November, and were down 0.6% from December 2021.
Analysts have also expressed concern about what Nordstrom’s guidance means for demand from high-end consumers, whose buying has remained fairly resilient despite macroeconomic challenges.
For
Piper Sandler
‘s Edward Yruma, who the revision indicates that high-income shoppers may be “undergoing a cyclical slowdown,” driven by layoffs in white-collar industries, a volatile stock market, and a weak housing market. He maintained a Neutral rating on the stock.
Write to Sabrina Escobar at sabrina.escobar@barrons.com
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Income-seeking investors are looking at an opportunity to scoop up shares of real estate investment trusts. Stocks in that asset class have become more attractive as prices have fallen and cash flow is improving.
Below is a broad screen of REITs that have high dividend yields and are also expected to generate enough excess cash in 2023 to enable increases in dividend payouts.
REITs distribute most of their income to shareholders to maintain their tax-advantaged status. But the group is cyclical, with pressure on share prices when interest rates rise, as they have this year at an unprecedented scale. A slowing growth rate for the group may have also placed a drag on the stocks.
And now, with talk that the Federal Reserve may begin to temper its cycle of interest-rate increases, we may be nearing the time when REIT prices rise in anticipation of an eventual decline in interest rates. The market always looks ahead, which means long-term investors who have been waiting on the sidelines to buy higher-yielding income-oriented investments may have to make a move soon.
During an interview on Nov 28, James Bullard, president of the Federal Reserve Bank of St. Louis and a member of the Federal Open Market Committee, discussed the central bank’s cycle of interest-rate increases meant to reduce inflation.
When asked about the potential timing of the Fed’s “terminal rate” (the peak federal funds rate for this cycle), Bullard said: “Generally speaking, I have advocated that sooner is better, that you do want to get to the right level of the policy rate for the current data and the current situation.”
In August we published this guide to investing in REITs for income. Since the data for that article was pulled on Aug. 24, the S&P 500
SPX,
has declined 4% (despite a 10% rally from its 2022 closing low on Oct. 12), but the benchmark index’s real estate sector has declined 13%.
REITs can be placed broadly into two categories. Mortgage REITs lend money to commercial or residential borrowers and/or invest in mortgage-backed securities, while equity REITs own property and lease it out.
The pressure on share prices can be greater for mortgage REITs, because the mortgage-lending business slows as interest rates rise. In this article we are focusing on equity REITs.
The National Association of Real Estate Investment Trusts (Nareit) reported that third-quarter funds from operations (FFO) for U.S.-listed equity REITs were up 14% from a year earlier. To put that number in context, the year-over-year growth rate of quarterly FFO has been slowing — it was 35% a year ago. And the third-quarter FFO increase compares to a 23% increase in earnings per share for the S&P 500 from a year earlier, according to FactSet.
The NAREIT report breaks out numbers for 12 categories of equity REITs, and there is great variance in the growth numbers, as you can see here.
FFO is a non-GAAP measure that is commonly used to gauge REITs’ capacity for paying dividends. It adds amortization and depreciation (noncash items) back to earnings, while excluding gains on the sale of property. Adjusted funds from operations (AFFO) goes further, netting out expected capital expenditures to maintain the quality of property investments.
The slowing FFO growth numbers point to the importance of looking at REITs individually, to see if expected cash flow is sufficient to cover dividend payments.
For 2022 through Nov. 28, the S&P 500 has declined 17%, while the real estate sector has fallen 27%, excluding dividends.
Over the very long term, through interest-rate cycles and the liquidity-driven bull market that ended this year, equity REITs have fared well, with an average annual return of 9.3% for 20 years, compared to an average return of 9.6% for the S&P 500, both with dividends reinvested, according to FactSet.
This performance might surprise some investors, when considering the REITs’ income focus and the S&P 500’s heavy weighting for rapidly growing technology companies.
For a broad screen of equity REITs, we began with the Russell 3000 Index
RUA,
which represents 98% of U.S. companies by market capitalization.
We then narrowed the list to 119 equity REITs that are followed by at least five analysts covered by FactSet for which AFFO estimates are available.
If we divide the expected 2023 AFFO by the current share price, we have an estimated AFFO yield, which can be compared with the current dividend yield to see if there is expected “headroom” for dividend increases.
For example, if we look at Vornado Realty Trust
VNO,
the current dividend yield is 8.56%. Based on the consensus 2023 AFFO estimate among analysts polled by FactSet, the expected AFFO yield is only 7.25%. This doesn’t mean that Vornado will cut its dividend and it doesn’t even mean the company won’t raise its payout next year. But it might make it less likely to do so.
Among the 119 equity REITs, 104 have expected 2023 AFFO headroom of at least 1.00%.
Here are the 20 equity REITs from our screen with the highest current dividend yields that have at least 1% expected AFFO headroom:
| Company | Ticker | Dividend yield | Estimated 2023 AFFO yield | Estimated “headroom” | Market cap. ($mil) | Main concentration |
| Brandywine Realty Trust |
BDN, |
11.52% | 12.82% | 1.30% | $1,132 | Offices |
| Sabra Health Care REIT Inc. |
SBRA, |
9.70% | 12.04% | 2.34% | $2,857 | Health care |
| Medical Properties Trust Inc. |
MPW, |
9.18% | 11.46% | 2.29% | $7,559 | Health care |
| SL Green Realty Corp. |
SLG, |
9.16% | 10.43% | 1.28% | $2,619 | Offices |
| Hudson Pacific Properties Inc. |
HPP, |
9.12% | 12.69% | 3.57% | $1,546 | Offices |
| Omega Healthcare Investors Inc. |
OHI, |
9.05% | 10.13% | 1.08% | $6,936 | Health care |
| Global Medical REIT Inc. |
GMRE, |
8.75% | 10.59% | 1.84% | $629 | Health care |
| Uniti Group Inc. |
UNIT, |
8.30% | 25.00% | 16.70% | $1,715 | Communications infrastructure |
| EPR Properties |
EPR, |
8.19% | 12.24% | 4.05% | $3,023 | Leisure properties |
| CTO Realty Growth Inc. |
CTO, |
7.51% | 9.34% | 1.83% | $381 | Retail |
| Highwoods Properties Inc. |
HIW, |
6.95% | 8.82% | 1.86% | $3,025 | Offices |
| National Health Investors Inc. |
NHI, |
6.75% | 8.32% | 1.57% | $2,313 | Senior housing |
| Douglas Emmett Inc. |
DEI, |
6.74% | 10.30% | 3.55% | $2,920 | Offices |
| Outfront Media Inc. |
OUT, |
6.68% | 11.74% | 5.06% | $2,950 | Billboards |
| Spirit Realty Capital Inc. |
SRC, |
6.62% | 9.07% | 2.45% | $5,595 | Retail |
| Broadstone Net Lease Inc. |
BNL, |
6.61% | 8.70% | 2.08% | $2,879 | Industial |
| Armada Hoffler Properties Inc. |
AHH, |
6.38% | 7.78% | 1.41% | $807 | Offices |
| Innovative Industrial Properties Inc. |
IIPR, |
6.24% | 7.53% | 1.29% | $3,226 | Health care |
| Simon Property Group Inc. |
SPG, |
6.22% | 9.55% | 3.33% | $37,847 | Retail |
| LTC Properties Inc. |
LTC, |
5.99% | 7.60% | 1.60% | $1,541 | Senior housing |
| Source: FactSet | ||||||
Click on the tickers for more about each company. You should read Tomi Kilgore’s detailed guide to the wealth of information for free on the MarketWatch quote page.
The list includes each REIT’s main property investment type. However, many REITs are highly diversified. The simplified categories on the table may not cover all of their investment properties.
Knowing what a REIT invests in is part of the research you should do on your own before buying any individual stock. For arbitrary examples, some investors may wish to steer clear of exposure to certain areas of retail or hotels, or they may favor health-care properties.
Several of the REITs that passed the screen have relatively small market capitalizations. You might be curious to see how the most widely held REITs fared in the screen. So here’s another list of the 20 largest U.S. REITs among the 119 that passed the first cut, sorted by market cap as of Nov. 28:
| Company | Ticker | Dividend yield | Estimated 2023 AFFO yield | Estimated “headroom” | Market cap. ($mil) | Main concentration |
| Prologis Inc. |
PLD, |
2.84% | 4.36% | 1.52% | $102,886 | Warehouses and logistics |
| American Tower Corp. |
AMT, |
2.66% | 4.82% | 2.16% | $99,593 | Communications infrastructure |
| Equinix Inc. |
EQIX, |
1.87% | 4.79% | 2.91% | $61,317 | Data centers |
| Crown Castle Inc. |
CCI, |
4.55% | 5.42% | 0.86% | $59,553 | Wireless Infrastructure |
| Public Storage |
PSA, |
2.77% | 5.35% | 2.57% | $50,680 | Self-storage |
| Realty Income Corp. |
O, |
4.82% | 6.46% | 1.64% | $38,720 | Retail |
| Simon Property Group Inc. |
SPG, |
6.22% | 9.55% | 3.33% | $37,847 | Retail |
| VICI Properties Inc. |
VICI, |
4.69% | 6.21% | 1.52% | $32,013 | Leisure properties |
| SBA Communications Corp. Class A |
SBAC, |
0.97% | 4.33% | 3.36% | $31,662 | Communications infrastructure |
| Welltower Inc. |
WELL, |
3.66% | 4.76% | 1.10% | $31,489 | Health care |
| Digital Realty Trust Inc. |
DLR, |
4.54% | 6.18% | 1.64% | $30,903 | Data centers |
| Alexandria Real Estate Equities Inc. |
ARE, |
3.17% | 4.87% | 1.70% | $24,451 | Offices |
| AvalonBay Communities Inc. |
AVB, |
3.78% | 5.69% | 1.90% | $23,513 | Multifamily residential |
| Equity Residential |
EQR, |
4.02% | 5.36% | 1.34% | $23,503 | Multifamily residential |
| Extra Space Storage Inc. |
EXR, |
3.93% | 5.83% | 1.90% | $20,430 | Self-storage |
| Invitation Homes Inc. |
INVH, |
2.84% | 5.12% | 2.28% | $18,948 | Single-family residental |
| Mid-America Apartment Communities Inc. |
MAA, |
3.16% | 5.18% | 2.02% | $18,260 | Multifamily residential |
| Ventas Inc. |
VTR, |
4.07% | 5.95% | 1.88% | $17,660 | Senior housing |
| Sun Communities Inc. |
SUI, |
2.51% | 4.81% | 2.30% | $17,346 | Multifamily residential |
| Source: FactSet | ||||||
Simon Property Group Inc.
SPG,
is the only REIT to make both lists.
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Online secondhand-fashion marketplace Poshmark Inc. has agreed to be bought by South Korean internet company Naver in a $1.2 billion deal, the companies announced Monday, a move that executives said would help both brands expand internationally.
Shares of Poshmark
POSH,
jumped 11.8% in after-hours trading on the news.
Under the terms of the deal, Naver
035420,
will acquire Poshmark’s outstanding shares for $17.90 in cash, representing a 15% upside to Poshmark’s Monday closing price of $15.57. The transaction is set to close by the first quarter of next year, pending Poshmark shareholders’ approval.
Poshmark went public in late 2020, pricing shares at $42 a share, and ended its first day of trading at more than $100 a share, but has never approached those heights again. It last traded for more than the acquisition price Naver has agreed to pay late last year.
For more: Five things to know about Poshmark
In a statement, executives from both companies talked up the potential to combine Naver’s array of search, e-commerce, AI and social-media technology with Poshmark’s social and shopping platforms. Poshmark, the companies said, would also embark on a bigger international expansion strategy, including into other markets in Asia, in the “medium-term.”
They also talked about the potential for the combined company to save around $30 million annually within two years after the deal’s closing through “rationalization of public company costs” and higher operating leverage, along with the potential for more than 20% yearly sales growth by harnessing Naver’s advertising resources.
Naver, which runs large search and e-commerce platforms, said the move would broaden its e-commerce platform, bring younger users into the company’s fold and allow it to “capitalize on the global online fashion re-commerce and sustainable economy opportunity.”
“Naver’s leading technology in search, AI recommendation and e-commerce tools will help power the next phase of Poshmark’s global growth,” Choi Soo-Yeon, Naver’s chief executive, said in a statement, which also said that Naver hosted a large number of digital content creators in Korea.
Naver owns companies like Wattpad, a social-media platform, and runs Webtoon, a site for digital comics, along with a metaverse platform called Zepeto, and also has joint ownership of an internet service group in Japan. Naver said its online community in Korea consists of more than 36 million monthly users, who use its search engine and other services.
Poshmark Chief Executive Manish Chandra said the deal would also give Poshmark opportunities to grow.
“Longer term, as part of Naver, we will benefit from their financial resources, significant technology capabilities, and leading presence across Asia to expand our platform, elevate our product and user experiences, and enter new and large markets,” he said in the statement.
Naver said the acquisition would also help give it a bigger foothold in the U.S. And it said the deal would allow it to broaden the appeal of so-called live-stream shopping.
“Live-stream shopping is a key driver of e-commerce in China and Korea (and increasingly in the U.S.) today, allowing shoppers to buy products in real-time through live video broadcasts, enabling greater insights and more clarity around purchasing decisions,” the statement said.
Once the deal closes, Poshmark will be a standalone subsidiary of Naver, with the same management team, brand and headquarters in Redwood City, Calif., the companies revealed.
At the close of Monday’s trading, shares of Poshmark were down around 9% year-to-date. The S&P 500 index
SPX,
by comparison, has slid 23% over that time.
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Sweden’s Hennes & Mauritz AB said Thursday that net profit for its third quarter fell significantly after it booked a one-time cost related to the winding down of its Russian operations, and that it will start a cost and efficiency program.
The company
HM.B,
posted a net profit of 531 million Swedish kronor ($47.4 million) for the fiscal quarter ended Aug. 31, compared with SEK4.69 billion a year earlier. Analysts polled by FactSet had expected a net profit of SEK2.17 billion.
Sales were SEK57.45 billion compared with SEK55.59 billion a year earlier. Analysts polled by FactSet had expected sales of SEK57.45 billion.
The company said it has booked a one-time cost of SEK2.10 billion, related to the winding down of Russian operations, hitting the result for the quarter.
The cost and efficiency program is expected to result in annual savings of around SEK2 billion.
“The third quarter has largely been impacted by our decision to pause sales and then wind down the business in Russia. This has had a significant effect on our sales and profitability, which explains half of the decrease in profits compared with the third quarter last year,” Chief Executive Helena Helmersson said.
Write to Kyle Morris at kyle.morris@dowjones.com
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