Nordstrom FY Results: Good but Not Good Enough

Nov.16.10 | About: Nordstrom Inc. (JWN)

Click to enlargeEven the positive retail sales for October released yesterday underlining the evidence of a US economic recovery failed to drive market sentiment in the retail space segment after closer scrutiny revealed that the numbers were actually slightly disappointing when auto sales were taken out of the mix. The only other sector except for the automobile sector that saw stronger growth than the headline number was building materials.

Meanwhile, Nordstrom Inc. (NYSE:JWN) reported a higher-than-expected quarterly net profit as sales at its upscale department store surged, but the chain gave a full year profit forecast that was largely below Wall Street expectations and shares slipped 2 percent.

Quarter Results

The upscale department store operator reported third quarter income of $119 million, or 53 cents per share, up 43.4 percent, from $83 million, or 38 cents per share, a year ago. Net sales were up 11.7 percent in the quarter ended Oct. 30 to $2.09 billion, helped by a 5.8 per cent increase in sales at stores open at least a year, or same-store sales.

Despite a positive retail sales figures and a higher than expetced quarterly profit, Nordstrom raised the lower end of its full fiscal year profit forecast range by just 10 cents expecting to earn $2.60 to $2.65 per share, compared to Wall Street forecasts of $2.64.

Future Plans

Nordstrom had earlier announced that the company was looking to open twelve new stores in 2010, and seventeen already planned for 2011. Fourteen out of the seventeen stores in 2011 are likely to be Nordstrom Rack locations, and the development of the Nordstrom Rack line is the first place of significant growth for Nordstrom.

The company has had same-store sale increases of 6.3%, 7.6%, 14.1%, 3.7%, 7.5%, 16.8%, and 10.3% from August – February in 2010, respectively. Nordstrom's discount stores, Nordstrom Rack, have seen 15 new openings this year alone, including one over the summer in designer-obsessed Manhattan.

High End Retail

With the trend in high-end consumer retail moving towards outlet stores and any other methods of pushing discounts, the luxury market will not look like what it used to back in the heyday for many more years. Although its true that risk of any struggle in the growth out of the recession could threaten the company, the company needs consistent growth to see continual growth.

On the other hand, Nordstrom Inc. is one of the most financially sound and responsible companies in the retail sector. It has margins and ratios that challenge technology companies, despite being in one of the slowest sectors in America. Analysts feel that the company has great potential moving forward as it has seen incredible growth in its operating income in the past two years plus the trailing term, averaging 7.5% year-over-year, which is quite large for such an established company.

(See earnings conference call transcript here.)

Disclosure: No position