“Successful Investing: At Nordstrom, careful planning, strong balance sheet always in fashion”

Successful Investing: At Nordstrom, careful planning, strong balance sheet always in fashion

Posted: 20 Jun 2010 09:16 PM PDT

Q:Please give me your assessment of shares of Nordstrom Inc. -- P.V., via the Internet

Answer: Luxury shoppers seem to be coming back, but this upscale apparel retailer known for customer service isn't about to get carried away.

Jewelry, dresses and women's shoes are the company's top performers this year. It also opened its first Nordstrom Rack clearance store in downtown Manhattan.

More important, however, has been its emphasis during the economic downturn on the improvement of its information technology, purchasing and inventory systems to assure strong management in all economic climates.

Cyclical trends are unavoidable for all retailers, yet Nordstrom's strong balance sheet and cautious plans for expansion place it in a better position than many competitors.

Less discounting and more popular merchandise on its shelves are its long-range intentions.

Shares of Nordstrom (JWN) are down 4 percent this year after a gain of 187 percent last year. Profits in its fiscal quarter ending in May were up 44 percent to $115 million, though that was below analyst estimates. The retailer raised its expectations for the full year.

Nordstrom operates 114 full-line stores and 76 Rack outlets, with sales gains less robust at the Rack than at the full-line stores this year. It also has an e-commerce Nordstrom Direct division that has posted strong gains, as well as catalog sales.

Less attractive in the eyes of analysts is the fact that Nordstrom owns its own private-label credit-card operation, which opens it to greater risk. Though delinquencies in that division are improving, they remain above the historical average.

The consensus analyst opinion on Nordstrom stock is currently "buy," according to Thomson Reuters, consisting of eight "strong buys," six "buys," 10 "holds" and one "underperform."

On one hand, Nordstrom faces tough competitors in a cyclical field that is dependent on fashion trends. On the other, it is a trusted brand with plenty of room to grow.

Earnings are expected to increase 33 percent for its fiscal year ending in January and 16 percent the following year, according to Thomson Reuters. The five-year annualized growth forecast of 12 percent is in line with overall estimates for the apparel-store industry.

Q:Do you feel that MFS Value Fund is worth holding in my retirement account? -- M.K., via the Internet

Answer: It has a deserved reputation of seeking out top-quality stocks and maintaining low volatility.

Both are commendable goals -- so long as investors don't expect its value approach to regularly turn in spectacular returns, as well.

The $14.5 billion MFS Value Fund (MEIAX) is up 9 percent this year to rank in the lower one-fifth of large value funds. Its three-year annualized decline of 8 percent is in the top one-fifth of its peers.

"This fund's consistent approach adds up to a nice long-term performance record, though that approach that helped it in 2008 hasn't helped it in the market since then," observed Bridget Hughes, analyst with Morningstar Inc., who advises patience by its investors.

"Yet, thanks to its dependable managers and staff of analysts, you don't have to worry about it making big sector bets that lead to volatility."

Financial services represent nearly one-fourth of portfolio holdings, with other concentrations in industrial materials, consumer goods and health care.

Portfolio manager Steven Gorham has been with the fund since 2002, joined by Nevin Chitkara in 2006.

Send questions to Andrew Leckey, 555 N. Central Ave., Suite 302, Phoenix, AZ 85004-1248 or .