We see little change to our $53 fair value estimate and view shares as a touch undervalued.
By Bridget Weishaar | 08-10-17 | 11:15 PM | Email Article

We continue to think that  Nordstrom  is the exception to the rule in the department store sector with second-quarter positive comparable sales growth bucking the declines seen at Kohl’s and Macy’s. We think this competitive outperformance continues to provide evidence to support our belief that the company possesses a narrow economic moat based on its premier brand reputation and customer service. Although we acknowledge that some of this outperformance was due to the success of the Anniversary Sale and will likely moderate going forward, we still think the company is on track to deliver average annual top-line growth in the 3% to 4% range over the next five years and that adjusted operating margin will remain in the 6% range over the same period. Therefore, we see little change to our $53 fair value estimate and view shares as a touch undervalued.

Bridget Weishaar is a senior equity analyst for Morningstar.

Second-quarter revenue growth of 3.5% was driven by a 1.7% comparable sales increase. We attribute part of this success to the Anniversary Sale which boasted online growth of more than 20% compared with last year's sale and growth in buy online, pickup in store sales of roughly 50%. In addition to a strong sell-through rate of anniversary product, Nordstrom also saw increases in regular priced sales during the sale period. Beauty and women's apparel were top performers, and three of the Nordstrom proprietary labels were among the top 5 selling brands. That said, the second quarter saw other growth successes that we see perpetuating into the back half of the year particularly in digital, which increased 20% at Nordstrom.com and 27% at Nordstromrack.com/HauteLook. We now believe digital penetration could end up exceeding our current 24% estimate by the end of this year by over 100 basis points.

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