Investment in Stores, Supply Chain Impact Nordstrom's (JWN) Outlook; Stifel Maintains 'Hold' Rating

Stifel affirms Nordstrom (NYSE: JWN) with a Hold rating following quarterly results reported late Thursday.

Analyst Richard Jaffe commented that Q4 numbers were slightly below expectations due to a slightly higher tax rate than we modeled related to a reassessment of the company’s deferred tax assets. Total comp store sales increased 4.7 percent driven by strength across all channels. Direct continues its strong growth, +19 percent, fueled by an ongoing increase in the assortment of merchandise offered (a larger assortment than what is offered in stores). The Rack off-price business continues to perform well, with comp sales increasing 3.2 percent and total sales up 17 percent as the off-price sector remains favored. In addition, both Nordstrom Rack and HauteLook continue to contribute to the acquisition of customers by offering great value.

Jaffe also said that FY15 EPS guidance of $3.65 - $3.80 came in below his outlook of $4 and the consensus of $4.12. The outlook is due largely to investments in stores, technology, supply chain, and the loyalty program. The analyst noted, In addition, both Canada and Trunk Club will incur operating losses in 2015. Gross margin is expected to decline slightly y/y due to higher occupancy related to accelerated Rack openings and Canada expansion. While JWN is a best-in-class retailer, we believe the stock is expensive at this level given the operating margin pressure and anticipated ROIC decline. While we believe many of these investments will eventually play out favorably, the timing is uncertain. With shares trading at 18x our 2016 EPS estimate versus its historical 2-year average of 15.2x; we believe the stock is fully valued and reflects more growth than we expect in the short-term.

For an analyst ratings summary and ratings history on Nordstrom click here. For more ratings news on Nordstrom click here.

Nordstrom closed at $77.14 yesterday.

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