Stock Analysis of Nordstrom

Crystal Huang Mayra Carranza Pei Wang

Agenda
Business and Market Financial analysis
Financial status Growth prospect Value evaluation

Recommendation

NORDSTROM

BUSINESS AND MARKET

Nordstroms business
Nordstrom
Luxury fashion specialty retailer 100 years of history Product Clothing Shoes Accessories For both women and men Market / Customer 225 Stores in US. 31 states Online stores Competition Fashion store SAKS MACYS Neiman Marcus Boutique Online stores Growth Strategy 230 new stores Technology / online Canada

Growth Rate in comparison with competitors

14.00% 12.70% 12.00% 10.00% 8.00% 8.30% 8% 8.50% Nordstrom Saks Neiman Marcus 12.70% 12.00%

6.45%
6.00% 4.00% 5.80%

5.61%

4.85% 4.40%

Macys

2.00%
1.30% 0.00% 2010 2011 2012

Stock Price History

$70.00 $60.00 $50.00 $40.00 $30.00 $25.30 $20.00 $10.00 $0.00 2010 2011 2012 7/25/2013 $37.58 $32.18 $61.38

$53.50
$49.71 $39.02

$48.29
Nordstrom Macys

Vulnerability
High competition
Many similar fashion stores exist Competing with other retailers and online stores LOW entry barriers

Vulnerable to economy downturn

People buy less luxury stuff when economy is bad Outlet stores help them sell cheap luxury brand

FINANCIAL ANALYSIS

Long-term Debt to Equity Ratio and Current Ratio

3 2.5 2 2.57 2.16 1.61 1.37 2.28 Long term debt to equity ratio Current ratio

1.5
1 0.5 0

1.63

2010

2011

2012

Low debt and high current ratio

Cash Position
Cash Provided by Operation
$1,400 $1,200 $1,000 $800 $1,177 $1,177 $1,110 $10.00 $9.00 $8.00 $7.00 $6.00 $5.00 $4.00

Cash per Share

$8.62

$6.77
$6.22

$600
$400 $200 $0 2010 2011 2012

$3.00
$2.00 $1.00 $0.00 2010 2011 2012

Stable generation of cash

Gross Margin and ROE

45.00% 40.00% 35.00% 38.99% 35.90% 35.19%

37.58% 35.64%

30.00%
25.00% 20.00%

33.80%

Gross Profit Margin Return on Equity

15.00%
10.00% 5.00% 0.00% 2010 2011 2012

Gross Margin of fashion retail industry ranges from 25% to 50%

Stable Gross Profit Margin and ROE

Growth in Sales / Earnings per Share

40.00% 35.00% 30.00% 25.00% 20.00% 15.00% 10.00% 5.00% 0.00% 2010 2011 2012 11.69% 14.29% 37.93%

2010

2011

2012

Growth in Sales 11.69% 12.13% 12.44% Growth in Earnings per Share 37.93% 14.29% 13.13%
Growth in Sales

Growth in Earnings per Share 13.13%

12.44%

12.13%

Steady growth despite of shrinking of EPS from 2010 to 2011

Growth in Account Receivable and Inventory vs. Sales

20.00% 17.50% 18.47% 15.00% 11.69% 10.00% 8.80% 12.13% 12.44%

Growth in Inventory 5.00% 4.70% Growth in account receivable Growth in Sales

0.00%

-0.44% 2010

0.35%
2011 2012

-5.00%

ALARM--Growth in Inventory surpassed Growth in Sales in 2011 and 2012

25.00

PE Ratio
19.51 17.10 15.83 15.03 14.37 12.78 NORDSTROM MACYS S&P 500

20.00

15.00

13.67

10.00

11.02

12.04

5.00

0.00 2010 2011 2012 2013 07/25/2013

Nordstroms PE is lower than S&P 500, but higher than Macys

PEG
Macys
1.00

Nordstrom
1.49

0
Buy

3
Sell

Price to Cash Flow

14.00

12.00
9.96

11.43 9.19 7.11 7.09 6.51 6.98

10.00 8.00
6.00 4.00 2.00 0.00 2010

8.19

Nordstrom Macys

2011

2012

July 2013 07/25/2013

Price to Cash Flow has been rising over last three years

Summary of Financial Analysis

Stable cash flow, debt, current ratio, gross margin, growth rate Alarm: Inventory is growing faster than sales Normal PE and PEG, higher than Macys

RECOMMENDATION

For Neutral Investor

HOLD Nordstorm
Strength
Stable financial status On track of growth Normal PE and PEG

Risk
High competition business, low entry barrier Vulnerable to economy downturn