Gauging Nordstrom’s market performance and valuation
Nordstrom and its peers
Nordstrom (JWN) is an upscale department store that competes with stores in the luxury space like Neiman Marcus and Saks Fifth Avenue. Mid-scale peers include Macy’s (M), Kohl’s (KSS), and Dillard’s (DDS). These companies sell consumer discretionary products like apparel and accessories. The SPDR S&P Retail ETF (XRT) had 6.33% holdings in department stores as of February 11, 2015.
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Nordstrom’s stock price has appreciated by 107% since 2010, yet over a five-year period, the company’s market performance has been lower than that of Macy’s, Dillard’s, and the Consumer Discretionary Select Sector SPDR Fund (XLY).
However, Nordstrom’s stock has really done well in the recent times. Compared to early 2014, the stock has appreciated by 26.7%, outperforming its peers and the XLY ETF.
Multiples like the PE (or price-to-earnings) ratio help in assessing the valuation of a company relative to its peers in the industry. Nordstrom is currently trading at a PE ratio of 19.0, which is above the multiple of 17.2 for the broader market represented by the S&P 500. Macy’s, Dillard’s, and Kohl’s are trading at PE ratios of 13.0, 13.7, and 15.2, respectively.
Nordstrom’s better performance compared to its peers over the past few quarters justifies its higher PE ratio. The company’s earnings exceeded analysts’ expectations for the first three quarters of fiscal 2014.
Nordstrom’s online business and Rack stores are crucial growth drivers. The company expects about 50% of its sales to come from these two areas in the near future. These areas generated 38% of Nordstrom’s sales in fiscal 2013.