Foolish Forecast: Nordstrom Goes for the Unbroke

Department-store operator Nordstrom (NYSE: JWN  ) has made quite a name for itself by catering to higher-end consumers. But it hasn't been able to turn up its nose to the current challenging retail environment, and like the competition, it's watching sales and earnings trends get squeezed. Tomorrow's first-quarter earnings report will shed more light on the subject.

What analysts say:

  • Buy, sell, or waffle? Of the 19 analysts following Nordstrom, eight are bullish on the stock, nine are on the fence with "hold" ratings, and two think you should sell out. The Motley Fool CAPS community has given the stock a three-star rating out of a possible five.
  • Revenue. Analysts are projecting $1.9 billion in first-quarter sales, for a 2.8% year-over-year decline.
  • Earnings. Analysts expect quarterly earnings of $0.49, which would be about 18% below the $0.60 reported in last year's quarter.

What management says:
Management announced preliminary first-quarter sales results last week, showing total sales falling 3.8% to $1.9 billion, and same-store sales decreasing 6.5%. When management released fourth-quarter 2007 results, it said to expect first-quarter 2008 earnings of $0.49-$0.54 per share, and it guided full-year comps to range between flat to a 2% decrease. It projects full-year earnings of $2.75-$2.90 per share.

What management does:
Nordstrom runs a tight ship, and it's even holding margins strong, thanks to its commitment to improving inventory and logistics tracking -- the bread and butter of any savvy retailing operation. The near-term environment is putting management to the test, and although its loyal customer base is less sensitive to rising oil, food, and other commodity costs, Nordstrom is still feeling a pinch in its business.

Margins

10/06

2/07

5/07

8/07

11/07

2/08

Gross

40.1%

40.3%

40.4%

40.4%

40.5%

40.5%

Operating

13.1%

13.4%

13.6%

13.3%

13.6%

13.7%

Net*

7.7%

7.9%

8.1%

8%

8.2%

8.1%

All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
Nordstrom has differentiated itself in the crowded department-store industry by focusing on higher-end products and a serious commitment to catering to its highfalutin' customer base. I can't say for certain whether this has helped it stay ahead of the conditions in the current retail environment: Its share price remains well off its highs for the year, and year-over-year earnings growth doesn't look too exciting at present.

Still, Nordstrom is one of the more profitable operators out there. Over the past year, it's also posted higher net margins than Kohl's (NYSE: KSS  ) , J.C. Penney (NYSE: JCP  ) , Dillard's (NYSE: DDS  ) , and archrival Saks (NYSE: SKS  ) . Despite the near-term challenges, Nordstrom's upper-crust positioning should continue over the longer haul, and it has plenty of real estate to expand into, since as it operates only 159 stores throughout the nation.    

For related Foolishness:

  • Fools voted Nordstrom for best customer service.
  • This Fool reflects on Nordstrom's shopping experience.
  • Last year's first-quarter results were snobby.

Fool contributor Ryan Fuhrmann is long shares of Kohl's but has no financial interest in any other company mentioned. Feel free to email him with feedback or to further discuss any companies mentioned. The Fool has an ironclad disclosure policy.


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