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Nordstrom (JWN) Up 15% in 6 Months: What's Behind the Rally?

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Nordstrom, Inc.’s (JWN - Free Report) significant progress on customer-based strategy along with solid store-expansion efforts and technological advancements is commendable. Moreover, the company boasts an impressive earnings surprise history, having surpassed estimates in seven of the trailing eight quarters. Also, sales outpaced the same in three of the last four quarters.

In the past six months, shares of the company have gained 14.9%, outperforming the industry’s 5.8% upside. Also, this Zacks Rank #3 (Hold) stock has a Momentum Score of B and a long-term earnings growth rate of 6%, which is impressive.



Furthermore, analysts are growing bullish on the stock as evident from increase in earnings estimates over the last 30 days. The Zacks Consensus Estimate of $3.45 for fiscal 2018 and $3.58 for fiscal 2019 moved up 3 cents, respectively. Let’s delve deeper.

Growth Drivers

Nordstrom remains on track to reach the long-term growth target of $20 billion by 2020, driven by its solid customer-based strategy. Also, the company plans to strike a balance between its sales and expense growth. Further, Nordstrom is making amendments to its operating model in response to the constant slowdown in mall traffic resulting from customers’ shift to online shopping.

In addition, the company is executing its strategy of enhancing market share through persistent store expansion and further investments, particularly in digital growth. Opening of new stores attracts customers and boosts the company’s top line via synergies across other channels. Notably, the company has successfully completed its planned full-line store expansion in Canada by opening six stores therein. Moreover, Nordstrom opened three stores in the Toronto and Calgary areas this spring and is on track to open three new stores in fall 2018. Simultaneously, the company remains keen on domestic store expansion.

Apart from widening its footprint through store openings, Nordstrom is strengthening capabilities by advancing in the technology space. Management is boosting e-commerce and digital networks as well as improving its supply-chain channels and marketing efforts. It also purchased two major retail technology entities — BevyUp and MessageYes — to cater to customers preferring online shopping. While BevyUp is a leading digital selling device, MessageYes is an iconic platform for conversational trading. In fact, the company’s first-quarter fiscal 2018 results reflected significant progress on its digital strategy. We believe these efforts will help Nordstrom to deliver sustainable growth over the long term.

Furthermore, Nordstrom runs in coherence with the evolving retail industry that is focused on offering maximum choices to customers to enhance their shopping experience. Recently, management announced the expansion of extended sizing for 100 brands across 30 stores. This will include various merchandising categories such as dresses, denim, swimwear, activewear and lingerie. Meanwhile, the company continues to efficiently allocate a major portion of its capital toward the multichannel growth strategy focused on improving its merchandise; developing IT infrastructure; renovating stores with a modern look; and developing fulfillment centers to enable speedy delivery to online customers. We believe these initiatives should build a healthy relationship with customers, thereby enhancing customer loyalty.

Deterrents

While the aforesaid initiatives speak well about Nordstrom, investments related to occupancy, technology, supply chain and marketing expenses remain a short-term headwind for the company. In fact, this has been impacting its gross margins, which contracted 21 basis points (bps) in the first quarter of fiscal 2018 after a respective decline of 42 bps, 12 bps and 25 bps in the fourth, third and second quarters of fiscal 2017. This, in turn, might hurt the company’s overall profitability, moving ahead.

Want Top-Ranked Retail Stocks? Check These

Urban Outfitters, Inc. (URBN - Free Report) pulled off an average positive earnings surprise of 19.8% in the last four quarters. The company sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Buckle, Inc. (BKE - Free Report) , also a Zacks Rank #1 stock, delivered an average positive earnings surprise of 9.7% in the trailing four quarters.

Fossil Group, Inc. (FOSL - Free Report) delivered an average positive earnings surprise of 54.1% in the trailing four quarters and carries a Zacks Rank #2 (Buy).

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