Amid this unstable retail environment, Nordstrom Inc. (JWN) has been able to maintain decent sales run so far in fiscal 2012, and we expect it to carry the same momentum throughout the year. The company has been relentlessly striving to keep itself on the growth trajectory, while keeping an upbeat note amidst the lackluster economy.
Riding on Positive Comps
From February to August 2012, Nordstrom has consistently registered improvement in comparable-store sales. During this period, comps growth touched a low of 0.9% and a high of 21%, thereby recording an average growth of approximately 8%.
In the first seven months of fiscal 2012, comps increased 10.2% in February, 8.6% in March, 7.1% in April, 5.3% in May, 8.1% in June, 0.9% in July and 21% in August.
Given the soft economic retrieval, monthly sales data for Nordstrom also portrayed a decent performance. The company, in the above mentioned period, registered a minimum sales growth of 1.1% and a maximum growth of 25.2%, reflecting an average growth of approximately 12.1%. Sales growth was recorded at 16.2% in February, 14.7% in March, 10.5% in April, 9.3% in May, 12.6% in June, 1.1% in July and 25.2% in August.
Nordstrom's expansion into Boston, MA indicates its focus on expanding the store network in order to drive top-line growth. Additionally, the company announced the opening of two new Nordstrom Rack stores – one in The Woodlands Mall in The Woodlands, Texas, and the other in St. Johns Town Center in Jacksonville, Florida. The stores are expected to open in fall 2014.
As of September 11, 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 – 1 full-line store and 15 Rack stores. Also, the company plans to add 24 new Rack stores in fiscal 2013 and intends to operate 230 Rack stores by the end of 2016.
In addition,the acquisition of HauteLook has helped Nordstrom to build its multi-channel retail format. It has facilitated the company to increase its direct business capabilities, implement an enterprise-wide inventory management system, conduct direct sales to online customers and enhance customer service.
Amidst all these positive factors, Nordstrom faces intense competition from other well-established players in the specialty retail sector such as The Gap Inc. (GPS), Limited Brands Inc. (LTD), Abercrombie & Fitch Co. (ANF) and Saks Inc. (SKS). Competitive pressure within the retail space may force the company to reduce its sales price, bringing down its margins.
However, the company’s customers remain sensitive to macroeconomic factors including interest rate hikes, increase in fuel and energy costs, credit availability, unemployment levels and high household debt levels, which may negatively impact their discretionary spending, and in turn the company’s growth and profitability.
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 #3 Rank, implying a short-term Hold rating. Moreover, we maintain our long-term Neutral recommendation on the stock.
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.
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