Analyzing Nordstorm (JWN)

By Yaser Anwar, CSC of Equity Investment Ideas

• JWN posted Q4 results of $0.89 vs. $0.69 last year, a 29% YoY increase in EPS, thanks to a strong holiday quarter and a strong year. For JWN, the women’s apparel division put the pedal to the medal alongside JWN’s designer strategy kept paying off.
• While results were a penny lower than consensus, on careful inspection I found the reason being additional bonus accrual due to stellar 06 performance as well as a 50% appreciation in stock price over the past 52-weeks.
• With the stock down 5%+ after hours, The Street viewed guidance for 07 as disappointing, but the pro-forma number was in line with consensus. In my opinion, the forward guidance was probably viewed as weak, for an otherwise stellar quarter.
• However, JWN’s management has a knack of being quite conservative. Management’s conservatism is evident by; comp guidance, which was was higher than it has been historically. Also, JWN’s pretax margin target was raised to 13%-14% from 12.5%-13% (keep in mind, JWN achieved 12.9% in 06).

• Designer Strategy: JWN is capitalizing on consumers taste for luxury labels in categories such as; premium denim, handbags, footwear and sunglasses. Furthermore, JWN management’s has been adamant with regards to their designer strategy, which is paying off with more luxury brand items to be placed in JWN’s stores.
• Women’s Apparel: Its been a year since, Loretta Soffe took over leadership in women’s apparel and the division has been gaining momentum. The division is hot since fall and still represents the biggest merchandising opportunity for JWN in 07.
• JWN’s top SSS performers were accessories, cosmetics and men’s apparel. In the women’s apparel division, Management has analyzed customer information and feedback from salespeople to better understand customers’ needs and shopping priorities in terms of style, price, fit and occasion. JWN has made changes to merchant teams and is in the process of re-editing assortments. Lastly, JWN is also expanding its women’s designer business, which has been a strong performing division.
• Management guided, for 07, EPS of $2.78-$2.84, including Q1 guidance of $0.51-$0.54, inclusive of one-time costs: a) for a previously announced securitization program which will impact EPS by $0.05, and b) higher than normal pre-opening costs for new stores opening in second half, which will impact by approximately $0.03.
• Q2 estimate is $0.77 vs. $0.67 last year, thanks to additional costs as well as slightly lower other income than previously anticipated. For Q3, estimate is $0.57 vs. $0.52 Q3 last year. Guidance excluding those items, would have been in the range of $2.86-$2.92 vs. Street estimates of $2.91.

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