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Tickers in this Article: JWN, M, LOW, SKS, COH, TIF
Nordstrom Inc.'s (NYSE:JWN) profits soared in its third quarter, as the high-end retailer continued the strong earnings momentum it established despite the recession. Nordstrom is part of a mini-resurgence in retail sales, though the market knocked the stock down on its disappointing full-year view. (To learn more, see 5 Long-Term Consequences Of The Recession.)

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Nordstrom's Numbers
The upscale department store chain earned 53 cents a share or $119 million profit for the quarter, compared to 38 cents or 83 million in last year's third quarter. Total revenue was $2.18 billion versus $1.96 billion in last year's same quarter. Same store sales rose 5.8%.

JWN's strongest merchandise categories were jewelry, dresses and shoes, while the company did best in the Northwest and Midwest regions. Nordstrom Rack, Nordstrom's discount outlets, increased sales by 17.9% or $65 million, though same-store sales were down 2.2%. Nine new Nordstrom Rack stores were opened while one full-line store was opened.

Retail Revival?
Although the luxury retailers have been doing well all year, Nordstrom's report coincided with the Commerce Department report that retail sales hit a seven-month high in October. Overall retail sales rose 1.2%, although this was largely driven by auto sales. Excluding the auto sales, overall retail sales were still up 0.4%.

Macy's (NYSE:M) department stores reported a positive quarter of earnings with healthy revenue increases, while even the battered home improvement sector showed promise as retailer Lowe's (NYSE:LOW) eked out a revenue increase and squeezed out strong profits.

A High-End Christmas
Predictions are for a robust Christmas retail season for Nordstrom and other luxury retailers. Luxury department store Saks (NYSE:SKS) is expected to do well, as is high-end handbag retailer and designer Coach (NYSE:COH). Tiffany & Co. (NYSE:TIF) should also shine along with its star upscale peers.

Even before the Christmas retailing quarter, the luxury retailers are doing well. Saks is expected to report a profit for its third quarter compared to a loss last year. Coach, which reported earnings at the end of October, saw income soar 43% as sales shot up 20%.

Nordstrom's Performance
Luxury retailers are expected to enjoy a 6-8% increase in same-store sales this Christmas season. Nordstrom's same-store sales and momentum from its third quarter put in squarely in line to fulfill that. Nordstrom has also seen year-over-year earnings increases during the recession. In fiscal 2009, Nordstrom earned $1.85 per share, in fiscal 2010 it earned $2.03, and despite guidance that was greeted less than warmly by The Street, the company projects it will finish its fiscal 2011 at $2.60 to $2.65 per share. Revenue has increased each year as well.

Price Chopping Luxury
Although Nordstrom and many of the other luxury retailers fared better than their mid-level counterparts in retail during the recession, they were not completely unscathed. They made adjustments as even high-end consumers became more price conscious. During the dark economic days of 2008, even the luxury retailers brought their prices down. Nordstrom chopped its prices by 10% and hasn't raised them. Coach has been offering more handbags at lower prices, which has increased sales volume. All the creative merchandising should pay off, as analysts expect the top five luxury chains to increase their profits by 22% this yuletide season.

Bottom Line
The consistently good retailing performance by Nordstrom has been duly noted by the market, which has kept the stock price fairly high. Even the recent blip of unhappiness after the earnings report didn't do much to the stock price, as Nordstrom stock was still selling roughly only 10% off its 52-week high. The P/E is reasonable even now at just under 18, with a forward P/E of less than 14. We like the earnings momentum better than the Street does; Nordstrom stock is attractive on a pullback. (To learn more about retail stocks, see Analyzing Retail Stocks.)

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