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We have retained our Neutral recommendation on Nordstrom Inc. (JWN - Analyst Report). The company’s robust performance in the fourth quarter of fiscal 2012, an encouraging forward outlook as well as the ongoing initiatives to expand store base and boost top-lines are favorable. However, the sluggish economic recovery, intense competition and the company’s exposure to seasonal fluctuations keep us on the sidelines.

Why the Reiteration?

Nordstrom operates as one of the leading players in the extremely fragmented specialty retail sector, offering a broad array of over 500 brands, targeted toward the whole family, through a strong nationwide network of more than 240 stores situated across 31 states.

Robust same-store sales and top-line trends as well as effective cost management helped this Zacks Rank #3 (Hold) stock gain 26.1% in the fourth quarter of fiscal 2012, reporting earnings of $1.40 per share. Quarterly earnings also beat the Zacks Consensus Estimate of $1.34. Moreover, robust performance at the company's stores as well as the inclusion of an additional week in fiscal year 2012 helped expand the company’s top line by over 13.3% to $3,702 million, beating the Zacks Consensus Estimate of $3,686 million.

Strong performance prompted management to provide a promising outlook for fiscal 2013. Management forecasted fiscal 2013 earnings per share excluding the impact of future share repurchases, in the range of $3.65–$3.80 per share, based on estimated sales growth of 4.5% to 6.5%.

Moreover, we believe the company’s sustained focus on expanding its store network along with enhancing online sales and consumer retention strategies will boost its top line and profitability. In the years ahead, the company targets to double the number of Rack stores to more than 230 over the next 4 years, with roughly 24 openings in 2013 and more than 30 in 2014.

Further, the company has actively implemented strategies to improve its merchandise offerings, develop IT infrastructure to enhance customer’s web and mobile experience, implement an enterprise-wide inventory management system as well as increase its significance among existing and new customers.

However, we remain slightly cautious on the company’s growth prospects due to sluggish economic recovery, intense competition from other established players and exposure to seasonal fluctuations.

Other Stocks to Consider

Other stocks that are performing well in the retail-apparel/shoe sector include Express Inc. (EXPR - Snapshot Report), which has a Zacks Rank #1 (Strong Buy), Gap Inc. (GPS - Analyst Report) and New York & Co. Inc. (NWY - Snapshot Report), both of which have a Zacks Rank #2 (Buy).

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