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Pre-Roll Tightness

01 March 2019 by jbchevrel

The luxury retailer Nordstrom Inc. (JWN) delivered mixed results overnight, including lower than forecast like for like sales in Q4 +0.1% (vs +1.2% est) and an EPS beat of $1.48 (vs $1.42 est). Guidance was also strong: FY19 EPS $3.65-$3.90 (vs $3.55 estimates). That took the stock up (+4%) and the 5y CDS tighter (-11bp). That being said, the big picture isn’t all rosy, in an increasingly challenged retail sector. Leverage came at 2.7x, still above the 1.5-2.5x target range’s top point. FCF dropped $180M. And despite that, JWN bought back $520M stocks, funded mostly by existing cash. This may attract agencies attention and lead to an outlook change, from the current Baa1 (Stable)/BBB+ (Stable)/BBB+ (Stable). So the credit picture is not as rosy as you could imagine while looking at the time series. However, with the roll coming in 2 ½ weeks, there has been quite little appetite to bid for single-name protection, of late. Thus, JWN 5y CDS tightens back to the lowest spread level, since last November. Elsewhere it was a relatively neutral session for US CDS, with CDX indices trading in tight ranges.