Nordstrom Pinned to Neutral - Analyst Blog
May 22 2012 - 12:44PM
Zacks
We maintain our Neutral recommendation on Nordstrom
Inc. (JWN), a leading fashion specialty retailer in the
United States, with a target price of $51 per share.
Our view is based on the company’s strong line up of globally
recognized brands catering primarily to the upscale segment,
enabling Nordstrom to generate high margin revenue. However, we
remain on the sidelines due to the first-quarter earnings miss,
intense competition and exposure to seasonal fluctuations.
Nevertheless, the company’s performance in the most recent quarter
reflected an upside from the year-ago quarter.
Driven by solid top-line performance, Nordstrom’s first-quarter
2012 earnings increased 7.7% to 70 cents per share from the
prior-year quarter. Top-line grew 13.7% to $2,535 million, driven
by robust performance of the company’s e-commerce business along
with the customer loyalty program.
Moreover, the company maintained its fiscal 2012 earnings
expectation at $3.30-$3.45 per share. The current Zacks Consensus
Estimate for fiscal 2012 stands at $3.43, well within the company’s
guidance range.
Further, Nordstrom’s flexible cost structure helps the company
to mitigate the impact of sluggish sales trends on margins, while
enabling it to quickly capitalize on the emerging opportunities
when market conditions recover. The company’s operations are mainly
based on a variable cost business model and about 40% to 45% of
selling, general and administrative expenses are variable in
nature. Consequently, we expect a steady improvement in the
company’s profitability moving forward.
On the other hand, Nordstrom remains focused on expanding its
store network to drive top-line growth. During fiscal 2011, the
company added 18 new stores, which contributed significantly to
12.7% year-over-year growth in fiscal 2011 net sales. Moreover,
Nordstrom will be continuing with its store expansion strategy in
fiscal 2012 with a target of opening 16 new stores consisting of 1
full-line store and 15 Rack stores.
We believe that the upscale department store operator will
continue to report healthy financial results in the near future.
The company will continue to attract more shoppers with its
different mediums of sales channel as well as offers.
Moreover, the recent acquisition of online private sale leader
HauteLook Inc. will facilitate Nordstrom to further increase its
direct business capabilities, implement an enterprise-wide
inventory management system and sell directly to online customers
while enhancing customer services, which in turn will boost its
profitability.
However, the leading retailer with over 500 brands competes with
well-established players such as The Gap Inc.
(GPS), Limited Brands Inc. (LTD),
Abercrombie & Fitch Co. (ANF) and Saks
Inc. (SKS), on the basis of fashion, quality and
service.
Additionally, the seasonal nature of Nordstrom’s business
facilitates generating a majority of the company’s sales during the
second and fourth quarters, characterized by the anniversary sale
and holiday seasons. As a result, Nordstrom is exposed to
significant risks provided the seasons fail to deliver expected
operating performance.
Given the balanced risk-reward scenario, Nordstrom's shares
currently maintain a Zacks #3 Rank, which translates into a
short-term Hold rating.
ABERCROMBIE (ANF): Free Stock Analysis Report
GAP INC (GPS): Free Stock Analysis Report
NORDSTROM INC (JWN): Free Stock Analysis Report
LIMITED BRANDS (LTD): Free Stock Analysis Report
SAKS INC (SKS): Free Stock Analysis Report
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