We still think Nordstrom is the best in class department store operator.
With an almost 1% comparable sales decline and only 3% sales growth, narrow moat Nordstrom
’s brick and mortar sales struggled like other department store peers. However, we note this weakness was already accounted for both in our full-year estimates calling for low-single-digit top-line growth and management guidance for a 3% to 4% increase in net sales for fiscal 2017. Furthermore, 7 basis points of retail gross margin expansion to 34.3% and only a 24-basis-point increase in the sales SG&A rate to 32% (with 2016 adjusted to exclude a $30 million non-operational charge), reaffirmed our belief that the company can achieve an overall operating margin in the 6% range in 2017 (versus roughly 6.6% last year excluding the goodwill impairment).
Bridget Weishaar is a senior equity analyst for Morningstar.
We continue to think that Nordstrom is best in class in the department store space with a correctly sized store base, superior customer service and store experience, and carefully curated product selection targeting a niche market. Therefore, we see little change in our estimates calling for about 4% average annual top-line growth over the next five years and operating margin remaining in the 6% range (with operational efficiencies offsetting e-commerce shifts). That said, we expect our $48 fair value estimate to increase $5 or $6 due to a lowered federal tax rate assumption, effective in fiscal 2018.
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