Nordstrom Posts Solid June Comps

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Nordstrom Inc. (JWN), one of the leading fashion specialty retailers in the United States, once again reported solid comparable store sales (comps) results for the five-week period ended June 30, 2012.

Nordstrom’s comparable store sales grew 8.1% for the month of June compared with the five-week period ended July 2, 2011. During the reported period, comparable store sales at Nordstrom’s two business segments – Nordstrom full-line and Nordstrom Rack – increased 8.1% and 8.5%, respectively, compared with the year-ago period. Total retail sales climbed 12.6% to $1,044 million from $927 million reported in June last year.

Quarter-to-date, Nordstrom’s total retail sales grew 11.1% to $1,914 million driven by a 6.8% increase in comparable store sales. During the period, the company’s comparable store sales at Nordstrom full-line and Nordstrom Rack segments increased 7.4% and 6.8%, respectively.

Year-to-date, Nordstrom’s total retail sales climbed 12.6% to $4,449 million, primarily driven by a 7.8% increase in comparable store sales. During the period, the company’s comparable sales grew 8.5% at Nordstrom full-line stores, while Nordstrom Rack stores registered a growth of 6.8% in comparable sales.

Peer Performance

One of Nordstrom’s competitors, Gap Inc. (GPS) registered a year-over-year flat same-store sales growth for the month of June, while net sales came in at $1.41 billion, up 2% compared with the prior-year period.

Store Update

During June, Nordstrom announced its plans to open two new Nordstrom Rack stores; one in hometown Seattle, Washington, and the other in El Paso, Texas. Seattle based Nordstrom Rack store is expected to begin operation in November 2012 while El Paso store will start operating the showroom by the fall of 2013.

Moreover, in June 2012, in a move to lure the people of New York City and millions of tourists, Nordstrom entered into an agreement with Extell Development Company to open a full-line store. Extell will build a 7-storey department store for Nordstrom, which is expected to be open in 2018.

We believe the initiative will create brand awareness of the company throughout the world, as millions of tourist travels to Manhattan to shop at luxury stores. The company offers both branded and private label merchandise, which are positioned in the upscale segment of the industry and targeted toward the aspiring middle class.

As of June 30, 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. The company ended the fiscal 2011 with 225 stores, including 117 full-line stores, 104 Nordstrom Rack store, 2 Jeffrey boutiques, 1 treasure&bond store and 1 clearance store. Thus, Nordstrom has added 6 Nordstrom Rack stores in the first five months of fiscal 2012.

Nordstrom’s latest store openings signify the company’s commitment to expand its store network with the aim to drive its top-line growth. The company’s focus on store expansion was also evident from the opening of four new Nordstrom Rack stores in the month of March, three new Nordstrom Rack stores in April and two Nordstrom Rack stores in the month of May 2012.

In fiscal 2011, Nordstrom added 18 new stores, contributing significantly to a 12.7% year-over-year growth in fiscal 2011 net sales. Moreover, Nordstrom plans to continue its store expansion strategy in fiscal 2012, targeting to open a total of 16 new stores, comprising 1 full-line store and 15 Rack stores.

Our Recommendation

Nordstrom remains focused on expanding its store network to drive top-line growth. Moreover, we believe Nordstrom’s HauteLook acquisition has facilitated the company in building its multi-channel retail format. The acquisition will boost Nordstrom’s direct business capabilities, implement an enterprise-wide inventory management system, and directly sell to online customers while enhancing its customer service. However, sluggish discretionary spending environment, intense competition and exposure to seasonal fluctuations keep us on the sidelines.

Based in Seattle, Washington, Nordstrom Inc. offers high quality apparel, shoes, cosmetics and accessories for men, women and kids. The company offers both branded and private label merchandise, as well as a private label card, two Nordstrom VISA credit cards and debit cards for Nordstrom purchases.

Nordstrom maintains a Zacks #3 Rank, which translates into a short-term Hold rating. Our long-term recommendation on the stock remains Neutral.

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