Nordstrom Reiterated at Neutral - Analyst Blog

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We have maintained our long-term Neutral recommendation on Nordstrom Inc. ( JWN ) with a target price of $49.00 per share. Moreover, the company has a Zacks #3 Rank, implying a short-term Hold rating on the stock.

Nordstrom is one of the leading players in the extremely fragmented specialty retail sector. The company offers a broad array of over 500 brands, targeted toward the whole family, through a strong nationwide network of 225 stores situated across 30 states.

Nordstrom has a strong line up of globally recognized brands, catering primarily to the upscale segment, enabling Nordstrom to generate high margin revenue. Consequently, this provides a competitive advantage to the company and bolsters its well-established position in the market.

Moreover, Nordstrom reported third-quarter 2011 earnings of 59 cents per share, surpassing the Zacks Consensus Estimate of 58 cents and surging 11.3% from 53 cents posted in the prior-year period. The results were primarily driven by strong top-line performance, resulting from increased comparable store sales.

Bolstered by better-than-expected quarterly results, the company has revised its earnings guidance range for fiscal 2011 in the range of $3.05 to $3.10 per share from $2.95 to $3.10 forecasted earlier. The earnings guidance is based on a same-store sales growth of 6%, instead of previously forecasted range of 4% to 6%.

Further, Nordstrom's recently acquired online private sale leader HauteLook Inc., will help the company in building its multi-channel retail format. The acquisition will facilitate Nordstrom to increase its direct business capabilities, implement an enterprise-wide inventory management system, direct sales to online customers while boosting customer service.

However, 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 if the seasons fail to deliver expected operating performance.

In addition, consumer's confidence and spending behavior may dampen due to macroeconomic factors including interest rate hikes, increase in fuel and energy costs, credit availability, high unemployment levels, and high household debt levels, which may negatively affect their disposable income, and in turn, the company's growth and profitability.

Above all, Nordstrom operates in a highly fragmented specialty retail sector and faces intense competition from other well-established players, such as Gap Inc. ( GPS ) and Limited Brands Inc. ( LTD ). The company primarily competes on the basis of fashion, quality and service. To retain its existing market share, the company may have to reduce its sales prices, which could in turn, affect its margins.

GAP INC ( GPS ): Free Stock Analysis Report

NORDSTROM INC ( JWN ): Free Stock Analysis Report

LIMITED BRANDS ( LTD ): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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