Nordstrom Stays Neutral - Analyst Blog
September 13 2011 - 7:51AM
Zacks
We have maintained our long-term Neutral recommendation on
Nordstrom Inc. (JWN) with a target price of $47.00
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 entire family,
through a strong nationwide network of 204 stores situated across
28 states.
The company 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, the acquisition of online private sale leader
HauteLook Inc. will help Nordstrom in building multi-channel
retailing.The acquisition will facilitate the company to increase
its direct business capabilities, implement enterprise-wide
inventory management system, sell directly to online customers and
enhance the company's customer service.
In addition, Nordstrom's operations are based on a variable cost
business model and approximately 40% to 45% of selling, general and
administrative expenses are variable in nature. This flexible cost
structure not only facilitates the company to mitigate the impact
of sluggish sales trends on margins, but also enables it to quickly
capitalize on the emerging opportunities when market conditions
recover. Consequently, Nordstrom can expect a steady improvement in
profitability moving forward.
Besides, Nordstrom's second-quarter 2011 earnings of 80 cents
per share surpassed the Zacks Consensus Estimate of 73 cents and
surged 21.2% from 66 cents posted in the prior-year period,
primarily driven by strong top-line performance, resulting from
increased comparable store sales and improved margins.
Bolstered by better-than-expected quarterly result, the company
has raised its earnings guidance range for fiscal 2011 in between
$2.95 and $3.10 per share from $2.80 to $2.95 forecasted
earlier.
However, 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),
Limited Brands Inc. (LTD) and Abercrombie
& Fitch Co. (ANF). The company primarily competes on
the basis of fashion, quality and service. To retain the existing
market share, the company may resort to aggressive pricing, which
could affect its margins.
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
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