Nordstrom, Inc. (JWN) reported second-quarter sales of $2.287 billion, which was in-line with its preliminary report, and EPS of $0.65, which was $0.01 above consensus. In addition, Nordstrom now expects to earn $0.49-$0.54 per share in the third quarter and $2.55-$2.65 for full-year 2008. The company's previous full-year guidance was $2.65-$2.80.
As we previously wrote, Nordstrom's consensus estimates were too high for the second half of the year and would have to come down. Those estimates are now moving closer to our estimates. As a result, we think the stock will be range-bound for the next six months. We maintain our Hold rating.
We expect the difficult retail environment to negatively impact Nordstrom's results for the next few quarters. Nearly one-third of the company's stores are in California, which is experiencing one of the worst housing markets in the country. While the interest rates are still low, consumers no longer have easy access to the credit markets because of record levels of household debt and lenders tightening credit standards.
We previously thought Nordstrom would be able to weather the slowdown because its core customers are more insulated from the negatives previously listed than middle-to-low income shoppers. It looks like the upper-middle income consumers are still shopping, but may be more willing to look for discounts. This is forcing Nordstrom to become far more promotional to attract customers.
JWN shares now trade at 12.4x our fiscal year 2008 EPS estimate and 11.9x our fiscal year 2009 EPS estimate. JWN shares trade in-line with its long-term growth rate, but well below its five-year average P/E of around 19x. Our target price is $32, which is about 12x our fiscal year 2009 EPS estimate.
Read the full analyst report on JWN
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