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Bull of the Day: Nordstrom (JWN)

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It has been a challenging environment for most mall-based retailers thanks to the rising trend for on-line shopping and increasing competition from off-price fashion chains.  Most retail stocks were hammered earlier this year but some of them rebounded strongly after their second quarter results were not as bad as feared.

Headquartered in Seattle, Nordstrom (JWN - Free Report) is an upscale fashion retailer offering clothing, shoes and accessories for men, women and children. Founded in 1901, they now operate 333 stores in 39 states and Canada, including 120 full-line stores, 205 Nordstrom Rack locations, five Trunk Club clubhouses, two Jeffrey boutiques and one clearance store.

Additionally, their merchandise is available through, and HauteLook.

During FY 2015, 71% of revenue came from their full-price operations and 29% from off-price. They have been gaining market share in their business, with 50% sales growth over last five years.

Strong Results and Raised Guidance

Nordstrom delivered a big earnings beat even though their sales were slightly shy of the Zacks Consensus Estimate. Earnings of $0.67 per share were substantially ahead of the Zacks Consensus Estimate of $0.55, but down 38.5% year over year. Outperformance was driven by efficient inventory and expense management, along with increased sales at the company’s grand anniversary sale event. Per management,their anniversary sale event this year was one of its biggest in a long time.  

While sales at their full-price stores fell, sales at their discount stores, Nordstrom Rack and Hautelook surged.  The company also raised its full-year earnings guidance to $2.60-$2.75 a share.

Rising Estimates

Analysts have raised their estimates after strong results. Zacks Consensus Estimates for the current and next year have surged to $2.71 and $3.00 per share, from $2.54 and $2.88 earlier.

The following chart shows recent positive momentum after several weak quarters:

Growth Strategy

The retailer plans to continue expansion in Canada, with two stores in Toronto. They’re also opening second full-line store in Austin, TX and 15 new Rack stores in fall. They’re expanding their loyalty program to better engage with customers.

Further they have been investing in their technology platform to increase productivity and their supply chain platform to improve operating performance.
The management expects these growth investments to add more than $1 billion to the top-line in 2016.

Returning Capital to Shareholders

They have been actively returning capital to shareholders via buybacks and dividends. The stock currently has a very attractive dividend yield of 2.98%. Further, trading at 18.36 times forward earnings, it looks attractive in terms of valuation also, compared with peers.

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