That's the new slogan
is using in its first national brand ad campaign.
But it could just as easily serve as the motto for the company itself. After struggling over the last year or so, Nordstrom has spruced up its women's apparel department, shaken up its management and embarked on a series of technological changes aimed at better controlling inventory. On May 4 the retailer is expected to report its sixth consecutive month of same-store sales growth, and analysts say it could be one of the only retailers to surprise on the upside given a generally
poor month for sales.
This has all encouraged investors, and Nordstrom shares have risen 17% this year, to about 30, even as the
S&P Retail Index
has fallen 6.1%. That's a nice run, certainly. But many analysts and investors think Nordstrom has plenty of room to improve its financial picture more. This week
analyst Dan Barry raised his rating on the stock to buy from intermediate-term accumulate, on the heels of at least two other upgrades in the past month. (Merrill has done recent underwriting for the company.)
The Sales Link
The key to Nordstrom's share price is blessedly simple: same-store sales growth.
analyst Jeffrey Feiner notes that
same-store sales growth is the engine behind retail stock price movements. Share prices move in line with sales 70% of the time over the following four weeks, he found in a survey of 13 months' worth of data. And interestingly, Feiner found the movement had very little to do with the price movements of the overall market.
Nordstrom's New Era
That suggests that retailers can actually see share price gains even if the overall environment for retail stocks is nasty, as it certainly is now. What happens is the so-called flight to quality, in which a handful of outperforming names gets the bulk of investors' retail dollars. The key to becoming one of those stocks is consistency, says Steven Dray, an associate manager with
, which owned 2.2 million Nordstrom shares on Dec. 31. "Those companies have superior management with excellent, excellent guidance in their numbers," he says. "Is Nordstrom there yet? It's not as exceptional as some other companies. It needs to not stumble and to start to execute."
The idea that Nordstrom might represent, as Merrill's Barry said in the note accompanying his upgrade, a "safe haven from potential retailing stock weakness" would have seemed laughable a year ago. Though the store has a reputation for impeccable customer service (one longtime story has a salesperson accepting a returned radial tire even though the store didn't sell tires), it has been hobbled by big swings in inventory and earnings. Sales fell for six consecutive quarters in 1998 and 1999.
"The store experience has always been wonderful for customers, but that didn't always translate to shareholders," says Dray. And how. Nordstrom shares were up and down during the latter part of 1998, then peaked at 43 about a year ago and have fallen steadily since. They dipped as low as 18 1/4 in February.
Behind the Curtain
But also in February, the company unveiled a rejiggered women's apparel division, the result of an 18-month brand audit. Customers said they wanted the department store to offer more current styles. In response, Nordstrom reorganized its myriad women's departments and devoted one-third of its floor space to more fashion-forward lines. In three test stores, financial results improved, and the new layout and merchandising strategy was rolled out in other Nordstrom stores earlier this year.
The effects of those improvements should continue to lift same-store sales going forward, say analysts. And there's more afoot. The company has streamlined its unwieldy management structure, which had a lot of Nordstrom family members as co-presidents. Nordstrom continues to improve its inventory management. And Nordstrom's technology, particularly when it comes to tracking merchandise, has lagged behind other department stores; it's finally putting some muscle behind those systems.
"I like them for a very basic reason: Sales per square foot is there, which means demand is clearly there," says one hedge fund manager who owns Nordstrom shares and who didn't want to be identified. The hedgie says financial controls and tech-driven productivity should eventually lead to better earnings. "There's reason to believe they'll get it right over the long haul. The thing that's hard to figure out is whether the market will be patient enough for the company to get it right."
In the current investing environment, technological improvements and management changes without accompanying financial improvements won't do much. Nordstrom can do anything it likes behind the curtain, but it will win the patience of the Street only by posting continued same-store sales and earnings gains. That's the way the company will truly reinvent itself into a retail safe haven.