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Why Nordstrom (JWN) May Not be a Good Pick for Your Portfolio

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Shares of leading fashion specialty retailer Nordstrom Inc.JWN continue to tumble. Year to date, this Zacks Rank #5 (Strong Sell) stock has nosedived approximately 37%. Moreover, ever since the company reported dismal top and bottom-line results for third-quarter fiscal 2015 on Nov 12, the company's shares have declined 20.6%. The worst came in yesterday, when the stock hit a 52-week low of $49.43. It is thus evident that Nordstrom is no longer a favorite pick for investors, at least over the short term. Let's delve deeper to find out the reasons.

After reporting an earnings beat in the second-quarter of fiscal 2015, the company succumbed to a negative earnings surprise in the third quarter mainly impacted by soft sales trends across all networks and merchandise categories. Quarterly adjusted earnings of 57 cents per share lagged the Zacks Consensus Estimate of 71 cents and tanked 21.9% from the prior-year quarter figure of 73 cents.

Moreover, a look at Nordstrom's top-line performance reflects weaker-than-expected sales in the fiscal third quarter. This is alarming considering that the company had consistently surpassed the Zacks Consensus Estimate in the past eight quarters. In the reported quarter, Nordstrom generated net sales of $3,328 million, missing the Zacks Consensus Estimate of $3,371 million.

Taking into account the disappointing third-quarter results and the expected impact from the credit card portfolio sale, Nordstrom has lowered its guidance for fiscal 2015. The company now expects net sales to increase nearly 7.5-8% in the fiscal compared with 8.5-9.5% growth projected earlier. Comps are estimated to rise about 2.5-3% against 3.5-4.5% improvement forecasted previously.

Consequently, the company envisions earnings per share in the range of $3.32-$3.42, as against the earlier guided $3.85-$3.95. Excluding the impact of the credit transaction and other one-time items, earnings per share are expected in the range of $3.40-$3.50, down from $3.70-$3.80 projected earlier.

Following Nordstrom's bleak quarterly performance and a dull outlook, the Zacks Consensus Estimate has naturally witnessed a downtrend. Analysts polled by Zacks are now less constructive on the stock's future performance. Over the past 60 days, the Zacks Consensus Estimate of $3.40 and $3.61 per share for fiscal 2015 and fiscal 2016 has declined 10.3% and 11.5% respectively. In addition, the Zacks Consensus Estimate for the fourth quarter has plummeted 13.1% to $1.26 over the same time frame.

Stocks to Consider

Better-ranked stocks worth considering in the sector include Abercrombie & Fitch Co. ANF , American Eagle Outfitters, Inc. AEO and Foot Locker, Inc. FL . Abercrombie & Fitch and American Eagle Outfitters sport a Zacks Rank #1 (Strong Buy) whereas Foot Locker holds a Zacks Rank #2 (Buy).

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ABERCROMBIE (ANF): Free Stock Analysis Report

AMER EAGLE OUTF (AEO): Free Stock Analysis Report

FOOT LOCKER INC (FL): Free Stock Analysis Report

NORDSTROM INC (JWN): 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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