Nordstrom, Inc. (JWN)

TMFIphone (93.08) Submitted: 7/21/08 1:27 PM : Start Price: $28.40 JWN Score: -21.53

Nordstrom is a luxury department store best known for its superior customer service. The company was incorporated in 1946 after being a shoe business staring in 1901 and is still run by many Nordstrom family members, with 25.6% of its stock owned by insiders. Nordstrom’s’ key selling point is the value of its brand name. Nordstrom stands for legendary customer service and never forgets its customer is #1. It’s been so successful catering to its shoppers, a book has been written about their successful strategy. For example, a personal shopper is available for each customer without a minimum purchase, a concierge will hold shopper’s bags and stores hold customer appreciation events. The customer service is so incredible, a rumor that an employee once allowed a customer to return a set of tires even though Nordstrom has never sold tires.

Other key characteristics that make Nordstrom a compelling investment idea:

•   Has been growing its margins steadily over the years and boasts gross and net margins far better than direct rivals Niemen Marcus, Saks, Dillard’s and more economical department store competitors J.C. Penny and Macy’s
•   Operates a perpetual inventory system that enables quick reactions to customer feedback from the sales floor to ensure they aren’t left with stale products on the floor
•   Despite the slowing economy and inventory build-ups many retailers have faced, Nordstrom has decreased its inventory levels in the past two years even as sales have remained slightly positive.
•   Management aims to keep low cash reserve on balance sheet to enhance shareholder return and has increased its dividend each year in the past six years and has been buying back shares for the last three years.
•   Nordstrom has averaged a trailing P/E ratio of 22 since 2001 but due to the major consumer slowdown and current weakened economy, the stock has slid to selling at just 10.2 times the last 12 months earnings and now trades with a 2.2% dividend yield.

The company’s high end clientele restrains Nordstrom’s growth to wealthier areas. However, with just 157 stores all located here in the U.S., the company does have considerable opportunity to expand its stores base. Management anticipates growing its store count by 20% in the next five years. Nordstrom’s potential growth particularly lies in many areas in the U.S. that are being renovated where contractors desire an upscale department stores to lure customers into newly developed shopping centers.

With many investors terribly bearish on the consumer outlook in the near term, the company’s near 40% drop over the past year provides a great entry point for a long term investment when the economy rebounds.

Report this Post Replies: 1 | Reply | Permalink