Nordstrom Is the Snobbiest of Them All

The move to higher-end, more fashionable merchandise is currently sweeping across the retail industry. And while the softer side at certain department-store chains may be feigning snobbier ambitions, Nordstrom (NYSE: JWN  ) is no wolf in sheep's clothing. But does this mean the retailer's stock can continue to best the competition going forward?

Beside Saks (NYSE: SKS  ) , Nordstrom is one of the few ways Fools can capitalize on upscale department store operators. Private equity has already taken Neiman Marcus off the publicly traded stock shelves, and Barney's is mired in Jones Apparel's (NYSE: JNY  ) apparel design and manufacturing operations.

Investors have given Nordstrom a nod for close to four years now. A renewed commitment to inventory management and related information technology complemented existing high levels of customer service and high-end brands that set the firm apart from the competition. This has translated into more than 30% annual cash flow growth over the past five years.  

First-quarter results released last evening included a 9.3% increase in sales and impressive 9.5% same-store sales growth. Diluted earnings jumped 24%, and management cited "sales leverage on fixed costs in buying and occupancy expenses primarily contributed to gross profit rate expansion, along with improved merchandise margin across categories" as reasons for the strong bottom-line performance.

Management is calling for 3%-4% comp growth for all of 2007 and has plenty of room to expand as there are currently only 98 namesake stores in the United States. It also operates 50 Nordstrom Racks to clear slower-moving and less popular merchandise from the parent stores, as well as four Faconnable "boutiques" to showcase one of its more popular apparel lines.

Throw in some of the highest margins in retailing and a reasonable price to earnings multiple compared to the peer group, and Nordstrom's stock definitely warrants consideration as a core department store holding. And if you're looking for snob appeal, while rivals such as J.C. Penney (NYSE: JCP  ) , Kohl's (NYSE: KSS  ) , and Wal-Mart (NYSE: WMT  ) may be adding more fashionable apparel, they will find it difficult to escape their cost-conscious images.

A fourth-quarter earnings faux pas demonstrates there are opportunities to take advantage of short-term stock dips at Nordstrom, which can be a good time to buy retailers in general.  

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Fool contributor Ryan Fuhrmann has no financial interest in any company mentioned. Feel free to email him with feedback or to discuss any companies mentioned further. The Fool has an ironclad disclosure policy.


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