Best U.S. Stocks: Nordstrom profits from new outlets—including first in Canada

Every Thursday we bring you “Best U.S. Stocks.” You get our specific recommendation on the stocks we profile, with a full explanation of how we arrived at our opinion. You will read about stocks making moves you should know about, from coverage in our newsletter on U.S. investing, Wall Street Stock Forecaster.

More consumers are shopping online instead of in stores. That trend has forced some book and music stores to close and is putting pressure on electronics chains and sellers of office and computer equipment.

Even so, most consumers still prefer to shop for clothes in stores, where they can try them on before buying. That’s a plus for Nordstrom. Moreover, the company continues to invest heavily in e-commerce and make it easier for shoppers to pick up their online orders in stores.

NORDSTROM INC. (New York symbol JWN; www.nordstrom.com) mainly sells upscale clothing, accessories and footwear. The company owns and operates 276 stores in 36 states. In September 2014, it opened its first Canadian location, in Calgary.

Nordstrom recently paid $350 million in stock for Trunk Club, which sells men’s clothing over the Internet. Trunk Club sends its members a selection of clothes based on their sizes and preferences. Members keep only the items they want and ship the rest back.

The company will operate Trunk Club as a separate business. However, this firm’s expertise should help Nordstrom improve its existing online operations.

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Stock investing: Expanded merchandise selection prompts 22% jump in online sales for Nordstrom

Meanwhile, Nordstrom’s sales rose 6.1% in its 2015 second quarter, which ended August 2, 2014, to $3.4 billion from $3.2 billion a year earlier.

That’s mainly because the company continues to open new outlets. Same-store sales at its full-line stores fell 1.2%. However, online sales jumped 22.0%, thanks to an expanded selection of merchandise.

Earnings fell 0.5%, to $183 million from $184 million. But due to fewer shares outstanding, per-share earnings rose 2.2%, to $0.95 from $0.93.

The additional shares Nordstrom issued to pay for Trunk Club, as well as that company’s losses, will cut Nordstrom’s projected fiscal 2015 earnings by about 4%, to $3.55 a share. The stock trades at 19.4 times that estimate, which is still reasonable in light of Nordstrom’s strong brand and international expansion opportunities. It also plans to buy back $1.3 billion of its shares by 2016. The $1.32 dividend yields 1.9%.

Nordstrom is a buy recommendation of our advisory on U.S. investing, Wall Street Stock Forecaster.

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