Nordstrom Pampers Investors

It's been a few months since I strolled into Nordstrom (NYSE: JWN  ) with my eyes solely focused on the spa area. I was there to hook my wife up with an aromatherapy massage, but I got a lot more for my $90. On the way out I picked up a few jars of the most amazing smelling bath salts, and the aroma has been relaxing ever since.

The fact is that there aren't many upscale retail stores like Nordstrom around the country. The company has obviously been leveraging this competitive advantage, as proven by its stellar third-quarter results, and continues to profit from top-notch product offerings combined with unrivaled customer service.

Third-quarter earnings for Nordstrom were $0.54 per share, which trounced the previous year's earnings of $0.33 per share and also beat the analysts' consensus estimate of $0.47 per share by a healthy 15%. Total sales were up 9.4%, and same-store sales grew an eye-popping 8.1%, highlighting the company's mature, yet productive, store base.

Nordstrom widely exceeded both Wall Street's and its own forecasts in the quarter; this upward trend was shared by fellow retailer Federated Department Stores (NYSE: FD  ) , but Saks (NYSE: SKS  ) wasn't as fortunate. Part of the company's success was linked to its 80- and 90-basis-point improvements in gross profit and SG&A expenses, which amply supported the strong sales growth.

Looking ahead, the company expects same-store sales to grow in the range of 1% to 3% in the fourth quarter and 6% to 8% for 2004. Nordstrom management also forecasts earnings of $0.90 to $0.95 per share for the fourth quarter (up from a previous target of $0.88 per share) and $2.68 to $2.75 per share for 2004 (raised from a consensus estimate of $2.58 per share).

Nordstrom shares, which have appreciated about 55% over the past year, should continue to pamper investors. Trading at only 17 times the consensus estimate of $2.71 per share for 2004, the shares appear to be very attractive relative to the current year earnings growth rate of 54% (the company earned $1.76 per share in 2003). Sprinkle in a 1.16% dividend yield to the warm story, and the sweet smell of investing should take over.

Pamper yourself a bit by relaxing with these Foolish views:

Fool contributor Phil Wohl spent more than 12 years on Wall Street and does not own shares of any company mentioned in this take.


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