Nordstrom Stays Neutral - Analyst Blog
March 29 2012 - 11:00AM
Zacks
Based on the company’s robust fourth-quarter 2011 results, we
reiterate our long-term ‘Neutral’ recommendation on
Nordstrom Inc. (JWN), one of the leading fashion
specialty retailers in the U.S., with a target price of $57 per
share.
Nordstrom’s fourth-quarter 2011 earnings of $1.11 per share beat
the Zacks Consensus Estimate of $1.10 and surged 6.7% from the
prior period. The increase was primarily driven by growth of 12% in
its top line, stemming from increased comparable store sales and
improved gross margin.
Bolstered by better-than-expected quarterly results, the company
expects earnings in the range of $3.30 to $3.45 per share for
fiscal 2012, an increase of 5% - 10% from fiscal 2011. The earnings
guidance is based on same-store sales growth of 4% - 6%. Further,
management is planning to make capital investments in the range of
$480 million to $520 million, primarily for boosting e-commerce
capabilities.
Nordstrom remains focused on expanding its store network to
drive top-line growth. During fiscal 2011, the company added 18 new
stores, which contributed significantly to year-over-year growth of
12.7% in fiscal 2011 net sales.
Keeping track with its store expansion strategy, the company
recently announced the opening of two new Nordstrom Rack stores;
one in Huntington, New York, and the other in Upland, California.
The company’s focus on store expansion was also evident from the
opening of two new Nordstrom Rack stores in the month of March 2012
– one in Orange, California and the other in Salt Lake City,
Utah.
Moreover, Nordstrom plans to take its store expansion strategy a
step ahead in fiscal 2012, targeting to open 16 new stores
consisting of 1 full-line store and 15 Rack stores.
Nordstrom’s strong line up of globally recognized brands acts as
a competitive advantage for Nordstrom while bolstering its
well-established position in the market. The company offers a broad
array of over 500 brands, targeted toward the whole family, through
a strong nationwide network of 226 stores situated across 30
states.
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.
Nordstrom's shares maintain a Zacks #3 Rank, which translates
into a short-term Hold rating.
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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