Nordstrom: Retail Gem - Stock Review

It goes without saying that the Great Recession took its toll on department store chains. A large reduction in the U.S. workforce, stagnant median incomes in many job segments, and the ensuing frugal consumer attitude meant that Americans had fewer dollars available for retail purchases.

What's more, for the next five years and perhaps for longer, the calculation forwarded here is that retailers will be competing for a smaller pie -- and that places the emphasize on knowing your niche and on business model execution. And with the latter in mind, Nordstrom (JWN) is worth a review.

Retailer extraordinaire Nordstrom has made it through the Great Recession in decent shape: because JWN targets the higher-end customer, it wasn't as hard hit as other, pedestrian department store chains. Same store sales at JWN should increase about 5 percent in fiscal 2013, followed by a 5 percent to 7 percent rise in fiscal 2014.

Nordstrom -- the standard in upscale, big-store retail -- plans to open three new Nordstrom stores and 17 new Rack stores (its markdown chain) in fiscal 2012 amid gradually improving conditions.

Expenses will increase with higher volumes and revenue, but efficiency improvements, including better inventory management, will help offset them.

Further, overall, it appears Nordstrom's core customer -- upper-middle income to higher-income citizens -- is ready to part with a few more dollars beyond the typical disposable income stash. That's also a tell-tale sign that the U.S. economic recovery is strengthening. It doesn't mean the bulk of the nation will return to its shop til you drop ways, but the higher end's increasing willingness to spend does represent another modest, positive data point on the road to recovery.

Nordstrom's shares traded Tuesday at mid-day down 60 cents to $47.82.

The Thomson Reuters First Call FY2011/FY2012 EPS estimates for JWN are $3.11 to $3.58.

Technical Analysis: Technically, Norstrom's stock has been on a rollercoaster in 2011, cycling between $37 and $52. JWN will encounter resistance at/near $52, but the recent uptrend and healthy correction suggests this is the period when the stock will trend toward $55 and beyond.

Stock Category: Nordstrom is ideal for those investors seeking a relatively safe department store chain play: JWN should offer modest capital gain, and the 92-cent annual dividend provides a cherry on top. There's also just a 5 percent chance you'll lose your entire investment with Nordstrom over a 10-year period.

2012 Outlook: I view Nordstrom as a long-term play, but if you're looking to sell JWN within the year, it's probably best to take your profits after it rises to $53 to $55, if it fails to clear $55.

Stock Analysis: Nordstrom Inc. is a moderate-risk stock. If an investor has already purchased the company's shares, I'd hold them. If not, I'd consider buying a 50 percent position in JWN now, and another 25 percent in one month, if the U.S. economy doesn't worsen substantially. In any event, I wouldn't buy more than 75 percent of my JWN position before February 2012. I'd put a sell/stop loss at: $33.

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Disclosure: L.C. Jacobs of New York, N.Y. reviews stocks on a quarterly, semi-annual, and annual basis.

L.C. Jacobs has no positions in stocks reviewed, but does own federal, municipal, and corporate bonds.

To see additional stock reviews by L.C. Jacobs, click here.

To contact L.C. Jacobs about this stock review, write to: stockreview@mail.com.

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