Macquarie Downgrades Nordstrom; Sees Dilution From Trunk Buy

Nordstrom, Inc. (NYSE: JWN) could face higher-than expected costs to integrate its recent $350 million acquisition of the menswear retailer Trunk Club even as its expansion of discount Rack outlets cuts into profit margins, an analyst said Thursday.

Macquarie's Laurent Vasilescu downgraded the Seattle-based department store Thursday to Neutral from Outperform, cutting his target to $70 from $77.

Vasilescu figured the Trunk deal will cut Nordstrom's 2014 earnings by 3 percent to 5 percent and cause "further dilution over the next few years."

Nordstrom announced the acquisition in July of Chicago-based Trunk, which caters to shoppers with more money than certainty about taste.

Trunk customers are initially interviewed by telephone by a Trunk "stylist," who takes note of preferences and measurements, and then mails out a "trunk" of clothing. Customers pay for what ever they don't send back within ten days.

In a separate strategy, Nordstrom hopes that its Rack discount chain will account for half its sales within several years. The company is expanding the chain, and plans to have 167 locations operating by year end.

Vasilescu expects the strategy will hurt Nordstrom's margins.