Nordstrom's Is A Perfect Early Christmas Present

Retailers announced October same-store sales Nov. 3 and while positive, missed analyst estimates. Expecting an overall increase of 4.7%, they came in at 3.7%, perhaps indicating Christmas sales won't be as brisk as they were last year. Among the group of stores missing estimates was Nordstrom (NYSE:JWN), who delivered 5.4%, 100 basis points lower than expected. Any investor discontent over this miss, resulting in a decline in its stock price, has an opportunity to buy an early Christmas present. Even if it doesn't decline too much, it's still a great stock to own.

What's most impressive about Nortstrom's year so far, is the performance of its full-line division. Year-to-date, the division's same-store sales are up 8.1% and on a quarterly basis they're up 8.5%. This compares to YTD numbers for its Nordstrom Rack division of 4.3%. Looking at the glass half full, the off-price division is coming on strong, just as the legacy business is slowing slightly. How do we know this? The off-price division's third quarter same-store sales increased 6.8% and its October same-store sales jumped 7.4%. If this trend continues, it's possible profits will be slightly affected.

However, Nordstrom's overall business is very strong. If the scenario plays out among retailers in general, it could be a very tough Christmas for high-end retailers, like Tiffany & Company (NYSE: TIF) and Coach (NYSE: COH). Nordstrom's dual brands will come in handy for Christmas shoppers looking for something nice and less expensive. (To know about how to budget for Christmas shopping, read: 6 Tips For Last-Minute Christmas Budgeting.)

The company's plan for 2011 includes opening six full-line stores and 18 Nordstrom Rack. As of the end of October it had 117 full-line and 108 off-price stores open. Clearly with the economy as fragile as it is, it won't be picking up the pace beyond a yearly average of 18-24 store openings. However, given the announcement Nov. 3 that off-price retailer Syms (NASDAQ:SYMS) is closing all 47 of its stores, it's possible some of these locations will be difficult to resist. With over $1 billion in cash in the bank and generating approximately $750 million in free cash flow annually, if the right locations come along, it will have plenty to cover store renovations, etc. It's a great position to be in.

It's not very often that you find a large-cap stock, with large insider ownership. In the case of the Nordstrom's, family members own 26% of the stock and Blake Nordstrom is firmly in charge, as President of the company. Not to mention, a total of five family members serve on the board; all of them are young and capable of remaining involved, for many years to come. I'm always interested in businesses where management have made a significant investment. Retailing is in their blood, who else would you want in charge when the going gets tough? Besides, the company tried that between 1995 and 2000, with miserable results. Hopefully, a Nordstrom is running the company for the next 100 years. Why mess with a good thing?

Nordstrom hit a slippery patch during the recession of 2008 but it's a thing of the past. Despite a price to sales ratio that's double Macy's (NYSE: M), it will do just fine in the long run. Don't be shy. (For additional reading, check out: Analyzing Retail Stocks.)

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At the time of writing, Will Ashworth did not own shares in any of the companies mentioned in this article.