The risk reward equation of the leading fashion retailer
), remains balanced, following the company's better-than-expected
second quarter 2012 results, upbeat guidance, store expansion plans
and strong portfolio of globally recognized brands, offset by
competition from other established players and exposure to seasonal
Established as one of the leading players in the specialty retail
sector, Nordstrom enjoys a competitively advantageous position
given its wide portfolio of over 500 brands. Targeted toward the
whole family, through a nationwide network of more than 225 stores
across 30 states, this strong line-up of renowned brands enables
the company to generate high margin revenue, while bolstering its
well-established position in the market.
Nordstrom reported better-than-expected earnings of 75 cents per
share for the second quarter of fiscal 2012, beating the Zacks
Consensus Estimate by a penny. However, the quarterly earnings were
lower than the prior-year period earnings of 80 cents per share.
Top line augmented 7.1% to $2,535 million, driven by robust
performance at the company's e-commerce business along with the
customer loyalty program.
Buoyed by better-than-expected bottom-line performance, the company
raised its earnings guidance range for fiscal 2012 to $3.40 - $3.50
per share from $3.30 - $3.45 forecasted earlier.
Further, Nordstrom remains focused on expanding its store network
to drive top-line growth, evidenced by the company's expansion into
Boston, Massachusetts. Additionally, in June 2012, the company had
announced the opening of two new Nordstrom Rack stores -- one in
its hometown Seattle, Washington, and the other in El Paso, Texas.
The Seattle-based store is expected to open in November 2012 while
El Paso store is expected to start operating by the fall of 2013.
During fiscal 2011, Nordstrom added 18 new stores, which
contributed 12.7% year-over-year growth in fiscal 2011 net sales.
As of August 2, 2012, Nordstrom operated 117 Nordstrom full-line
stores, 110 Nordstrom Rack, 2 Jeffrey boutiques, 1
treasure&bond store and 1 clearance store, thus bringing the
total store count to 231.
Nordstrom is set to 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 plans
to add 24 new Rack stores in fiscal 2013 and intends to operate 230
Rack stores by the end of 2016.
On the flip side, Nordstrom faces intense competition from other
well-established players in the specialty retail sector such as
The Gap Inc.
Limited Brands Inc.
Abercrombie & Fitch Co.
). Competitive conditions within the retail space may force the
company to reduce its sales price, bringing down the company's
Further, Nordstrom's business is seasonal in nature and generates a
high proportion of sales during the second and fourth quarters,
which are characterized by the company's anniversary sale and
holiday seasons. As a result, Nordstrom is exposed to significant
risks, provided the seasons fail to deliver expected operating
Another major element that may hurt the company's growth and
profitability is the diminished consumer confidence and spending
behavior as macroeconomic factors like higher fuel and energy
costs, credit availability, high unemployment levels and high
household debt levels continue to affect their disposable income.
Nevertheless, the short-term outlook for Nordstrom remains
positive, based on the encouraging results and the execution of its
store expansion plans. The company retains a Zacks #2 Rank,
implying a short-term Buy rating.
ABERCROMBIE (ANF): Free Stock Analysis Report
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