The long-term recommendation on the leading fashion retailer,
), is retained at 'Neutral' given the company's slight earnings
miss in the third quarter of 2012. However, strong top line
growth and an encouraging guidance compensate well for the miss.
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One of the leading players in the extremely fragmented specialty
retail sector, Nordstrom offers 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.
Nordstrom has a sturdy line up of globally recognized brands,
catering primarily to the upscale segment, enabling Nordstrom to
generate high margin revenue.
Nordstrom reported third quarter earnings of 71 cents per share,
missing the Zacks Consensus Estimate by a penny. However, the
company's earnings rose over 20% from the prior-year quarter
earnings of 59 cents on the back of robust top-line growth and
effective cost management. Nordstrom's same-store sales and
top-line trends were encouraging for the quarter, as total
revenue grew 13.3% year over year to $2,808 million, beating the
Zacks Consensus Estimate of $2,798 million. Sustained focus on
enhancing direct business and robust store performance were
responsible for such top-line expansion.
Buoyed by strong quarterly performance, Nordstrom raised its
earnings guidance for fiscal 2012 to $3.45-$3.50 per share from
$3.40-$3.50 forecasted earlier. Going forward, we believe the
company's sustained focus on expanding store network along with
enhancing online sales and consumer retention strategies will
boost its top line and profitability.
Nordstrom remains focused on expanding its store network to drive
top-line growth. During fiscal 2011, the company added 18 new
stores, which contributed year-over-year growth of 12.7% to
fiscal 2011 net sales. Moreover, Nordstrom will continue 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.
In addition, the company has planned to add 24 new Rack stores in
fiscal 2013 and intends to operate 230 Rack stores by the end of
Further, we believe Nordstrom's focus on customer service will
help build customer loyalty, which in turn should support the
comps. The company is making efforts to improve customer
relations by introducing Fashion Rewards Program, which has over
2.6 million participants, and by announcing various rewards and
benefits for the customers.
However, we remain slightly cautious on the company's growth
prospects due to sluggish economic recovery, intense competition
and exposure to seasonal fluctuations.
Nordstrom faces intense competition from well-established
players, such as
The Gap Inc.
Limited Brands Inc.
), competing primarily on grounds of fashion, quality and
service. To retain its market share amid such competition, the
company may have to reduce its sales prices, which could affect
Driven by the aforementioned positives and negatives and in sync
with its long-term recommendation, Nordstrom's shares maintain a
Zacks #3 Rank, which translates into a short-term Hold