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Nordstrom, Inc. (JWN): Risky and Exciting Retail Investments

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Nordstrom, Inc. (NYSE:JWN)s expansion plans indicate that the company is confident in its future potential. Most retailers are closing stores, not opening new ones. Nordstrom’s decision is a good sign, but risks exist. Perhaps another retailer offers a better opportunity.

Canadian expansion

Nordstrom, Inc. (NYSE:JWN)

Nordstrom crosses the Northern border in 2014 with a location at Chinook Centre in Calgary. It will follow that up in 2015 with locations at Pacific Centre in Vancouver and Rideau Centre in Ottawa. All of these locations formerly belonged to Sears Holdings Corporation (NASDAQ:SHLD). Since all of the aforementioned malls are high-end, Nordstrom will have more potential than Sears. Two new locations will open in 2016 — Sherway Gardens in Toronto and Toronto’s Yorkdale Shopping Centre.

Nordstrom, Inc. (NYSE:JWN) and Hudson Bay’s Lord & Taylor have competed for many years in the United States. Hudson Bay CEO, Richard Baker, doesn’t seem thrilled with Nordstrom’s expansion plans into Canadian territory, commenting:  “Hudson Bay is a promotional retailer and every day there is a different kind of exciting promotion going on, and that is what drives our business. Nordstrom is a full-price retailer with a sale twice a year.”

Nordstrom, Inc. (NYSE:JWN) actually offers five sales per year, but his point is obvious — Nordstrom isn’t the place to go if you’re looking for value. However, that’s not the case in July, when Nordstrom celebrates its Anniversary Sale. During this time, you can purchase fall items for tremendous discounts, earn double points on your Nordstrom card if you shop on the weekend, and set up appointments with sales associates.

Nordstrom, Inc. (NYSE:JWN)’s strategy with the Anniversary Sale is to get former shoppers back into the store as well as to attract new ones. While the sale might not lead to great margins, these shoppers are likely to browse higher-margin items. A new shopper might also be impressed with what he or she sees and return to the store at a later date.

This is how Nordstrom competes on the promotional front. By keeping sales sporadic, it makes them special events that shoppers can get excited about. You can look at it at as a supply and demand situation: Fewer sales equals increased demand for sales.

In the United States, Nordstrom, Inc. (NYSE:JWN) plans on opening 14 more stores this year and 30 stores in 2014. Currently, 240 Nordstrom stores can be found in 31 states. Nordstrom operates 34 stores in California, but the second-most popular state for Nordstrom is Texas with only 10 stores. Therefore, domestic growth potential is good.

Nordstrom’s recent performance

Nordstrom, Inc. (NYSE:JWN) is well known for its exemplary customer service. In the employee handbook, it simply reads: “Trust Your Judgment.” This demonstrates the company’s trust in its employees, which leads to an excellent working environment and company culture. This positive attitude is contagious, and it spreads to the customers. This, of course, leads to strong sales.

Same-store sales increased 2.7% year-over-year in the first quarter, but expansions, promotions, and spending on e-commerce and technology led to increased costs. These costs are short-term negatives, and they shouldn’t play a role in your investment decision.

Full-year guidance disappointed with sales growth expectations moving from a range of 4.5% to 6.5% to a range of 4% to 6% and same-store sales going from between 3.5% and 5.5% to between 3% and 5%. However, Nordstrom reiterated EPS guidance at $3.65 to $3.80.

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