Nordstrom Up But Zumiez Lowers Outlook: Retail is Washed Out

As I noted Wednesday, the retail stocks look like internet bubble stocks of the early 00s. [Are Department Stores Signaling a Recession in 2008?] However, I did go ahead and make my first real foray into the space in a contrary to market move as these names just seemed so washed out.

I am beginning a new position in Nordstrom (JWN) - yes you heard me. Retailers have been trashed and the stocks are holding up well today. Nordstrom is a quality brand, and while aspirational is better positioned in terms of customer than Kohls or JC Penney. The stock is now trading at 10x earnings. I bought 700 shares in the $33s, a $23.6K position or 2% of the fund. This might be a shorter term hold than is typical but these stocks appeared to be washed out. Granted buying ahead of monthly same store sales is a risk, but there needs to be some bounce at some point. Certainly not a favored sector but at times the market overdoes it. I believe this is one of those opportunities.

This morning Nordstrom reported WORSE than expected same store sales of -2.4% vs +1.1% expectation. With that said, the stock is up 1.5% in pre-market. Signs like this indicate what I sensed Wednesday - the bad news is 'priced in' some of these stocks. That said the numbers aren't very good.

It could be worse; former high flier Zumiez (ZUMZ) which has been holding up relatively well (but far to 'niche' for me) finally succumbed to the slowing customer and is down 24% in premarket. It is still trecherous out there in this space and anything that has not been taken to the woodshed carries some risk. Hence if I am going to poke a toe into this space, I'd rather buy something everyone already hates - makes it really hard to provide disappointing results when no one expects anything positive from you.

• Specialty retailer Zumiez Inc (ZUMZ) lowered its fiscal 2007 earnings outlook, as it expects a warmer winter to hurt sales of its seasonal merchandise, sending shares down more than 28 percent.
• The retailer of action sports clothes, footwear, equipment and accessories also forecast third-quarter earnings below analysts' estimates.
• For the third quarter, Zumiez forecast earnings of 27 cents to 28 cents a share. Analysts were expecting 33 cents a share, before exceptional items, according to Reuters Estimates. For 2007, the company expects earnings of 92 cents to 94 cents a share, down from its prior view of 97 cents to 99 cents. Analysts were expecting earnings of $1.01 a share for the year.

Yet another case of when "growth stocks" show even the slightest hint of slowing, and stock implosion ensues. Zumiez was supposed to be a safe harbor in the port of retail; immune from the issues facing everyone else.... not so much.

Long Nordstrom in fund; no personal position