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Find Out What's Behind Nordstrom's (JWN) Cheer in 2018

Nordstrom Inc. JWN stock has been cheering since the start of 2018 backed by its sturdy customer-oriented strategies, persistent store expansion initiatives leading to increased market share and investments to strengthen capabilities, particularly in digital growth. Moreover, the company’s raised guidance for fiscal 2017 followed by its encouraging holiday season sales, raises expectations for a spectacular 2018.

Optimistic view for 2018 along with robust initiatives led the Nordstrom stock to increase 1.2% in the past month, outperforming the industry’s decline of 3.2%. Let’s delve deeper into the factors driving this Zacks Rank #2 (Buy) stock up.

Robust Holiday Sales & Upbeat Outlook

Nordstrom posted modest improvement in sales and comparable store sales (comps) for the combined months of November and December, which primarily comprises the holiday season. The upside was primarily driven by growth in Nordstrom’s full-line and Rack stores compared with the year-to-date sales performance as well as persistent strength in e-commerce at Nordstrom.com and Nordstromrack.com/ HauteLook. While sales increased 2.5%, comps rose 1.2% for the nine weeks (ended Dec 30, 2017).

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Driven by this robust holiday sales, Nordstrom raised its previous guidance for fiscal 2017. The company now expects sales growth of nearly 4.2%, including the 53rd week, higher than the previously expectation of 4% sales growth. Also, comps are likely to increase 0.5% compared with the prior expectation of flat comps. Additionally, the company anticipates earnings in the range of $2.90-$2.95 per share, marking an increase from the $2.85-$2.95 per share guided earlier.

Robust Surprise Trend

Nordstrom portrays a solid positive earnings surprise trend with six straight quarters of earnings beat. Further, the company has outpaced the Zacks Consensus Estimate for revenues in the last two quarters. This solid trend was driven by the smooth execution of the company’s customer strategy along with disciplined inventory and expense management. Also, sales growth in Nordstrom Rack and solid e-commerce performance are aiding results.

Long-Term Growth Initiatives Augur Well

Nordstrom has been making remarkable progress with respect to its customer-based strategy. Additionally, it is well on track to reach long-term growth target of $20 billion by 2020. In this regard, the company is enhancing market share through persistent store expansion and strengthening capabilities through further investments, particularly in digital growth. Third-quarter fiscal 2017 results reflected significant progress on its digital strategy. Notably, it delivered online sales growth of 14% at Nordstrom.com and a 26% increase at Nordstromrack.com/ HauteLook. Nordstrom anticipates online penetration to exceed 25% by the end of the year, backed by the ongoing efforts to elevate digital experience.

With regard to cost savings, Nordstrom is making plans to strike a balance between its sales and expense growth. Meanwhile, the company remains focused on its advancement in the technology space by boosting e-commerce and digital networks, and improving its supply-chain channels and marketing efforts. These endeavors are likely to pave the way for sustainable growth over the long term.

Store Expansion Improve Market Share

Nordstrom remains focused on its store expansion strategy in order to boost market share. In fact, the company prioritizes its investments in the top North American markets. Markedly, the opening of new stores is not only expected to attract customers but also boost the company’s top line via synergies across other channels. Nordstrom has also successfully completed its planned full-line store expansion in Canada with the opening of its sixth outlet at Sherway Gardens in Toronto.

Bottom Line

While all is well with Nordstrom, higher expenses remain a concern in the near term. Moreover, higher investments toward occupancy, technology, supply chain and marketing are likely to weigh upon near term costs and margins

However, the company is likely to overcome these hurdles through its solid multichannel growth strategies to keep up with the retail industry trends. Thus, Nordstrom looks well poised for solid performance in 2018.

Do Retail-Apparel Stocks Grab Your Attention? Check These

Investors interested in the industry may also consider stocks such as Zumiez Inc. ZUMZ, Shoe Carnival Inc. SCVL and American Eagle Outfitters Inc. AEO. While Zumiez and Shoe Carnival sport a Zacks Rank #1 (Strong Buy), American Eagle carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Zumiez delivered an average positive earnings surprise of 22.2% in the trailing four quarters. It has a long-term earnings growth rate of 18%.

Shoe Carnival pulled off an average positive earnings surprise of 20.8% in the trailing four quarters. In addition, it has a long-term earnings growth rate of 12%.

American Eagle delivered an average positive earnings surprise of 2.6% in the trailing four quarters. It has a long-term earnings growth rate of 5.5%.

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