The narrow-moat company is better positioned than its competitors with a smaller store footprint, differentiated customer service and product curation, and its successful complementary off-price concept.
By Bridget Weishaar | 02-23-17 | 05:40 PM | Email Article

Although narrow moat-rated  Nordstrom  suffered from the same mall traffic weakness as competitors in the fourth quarter (Nordstrom brand comparable sales were down 2.7%), Nordstrom Rack strength (comparable sales up 4.3%) offset this, resulting in a 2% increase in total sales and a total comparable sales decline of less than 1%. More importantly, the quality of sales was high with retail gross profit up 112 basis points to 36%, reflecting solid inventory management and reduced competitive markdowns. We continue to believe Nordstrom is better positioned than its competitors with a smaller store footprint, differentiated customer service and product curation, and its successful complementary off-price concept. We expect to lower our 2017 6% revenue growth estimate to reflect management’s more cautious outlook (calling for flat comparable sales resulting in 3% to 4% revenue growth including the 53rd week) given apparel demand headwinds. That said, we think our long-term estimates calling for average annual mid-single-digit top-line growth and operating margin in the 6% to 7% range are reasonable for a future normalized retailing environment. Therefore, we see little change to our $48 fair value estimate and view shares as fairly valued.

Bridget Weishaar is a senior equity analyst for Morningstar.

Morningstar Premium Members gain exclusive access to our full analyst reports, including fair value estimates, bull and bear breakdowns, and risk analyses. Not a Premium Member? Get this and other reports immediately when you try Morningstar Premium free for 14 days.

Securities mentioned in this article

Ticker

Price($)

Change(%)
Morningstar Rating Morningstar Analyst Report
With Morningstar Analyst reports you can get our expert Buy/Sell opinions on over 3,900 Stock and Funds
Bridget Weishaar does not own shares in any of the securities mentioned above. Find out about Morningstar's editorial policies.
Sponsored Links
Sponsor Center
Content Partners