Why Nordstrom Inc. Climbed 15% in November

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What happened

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Shares of Nordstrom Inc. (NYSE: JWN) moved higher last month, after the company turned in a decent third-quarter earnings report and benefited from a broader wave lifting retail stocks -- especially at the end of the month, as the sector jumped on reports of strong sales over Black Friday weekend.

According to data from S&P Global Market Intelligence, Nordstrom shares finished the month up 15%. The bulk of those gains came at the end of the month.

So what

The first big move for Nordstrom came on Nov. 9, when the stock jumped 4.5% after Macy's turned in a better-than-expected earnings report, pushing retail stocks up broadly. Nordstrom reported its third-quarter earnings after the market closed that day, and the stock finished flat on Nov. 10, indicating the market was satisfied with the results. 

Comparable sales fell 0.9% in the period as brick-and-mortar sales continued to erode, and comparable-store sales plunged 5% at Nordstrom Rack, a sign that the company's off-price strategy may be faltering. Still, online sales continued to grow, and overall revenue increased 2% to $3.63 billion, ahead of estimates at $3.6 billion.

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On the bottom line, adjusted earnings per share fell from $0.84 to $0.67, though that also beat expectations of $0.63. The company also said EPS would have been $0.71 if not for the effect of hurricanes.

The following week, the stock climbed on strong earnings reports from other retailers and surged 11% over Nov. 28 and 29, on a promising kickoff to the holiday shopping season.

Now what 

Nordstrom has managed the fallout from the so-called retail apocalypse better than many of its peers, as the company has made smart moves such as building out an e-commerce business that now makes up nearly a quarter of its total sales. Its off-price Nordstrom Rack chain has also given it an advantage over its department-store peers, though it may no longer make sense to expand the concept after the recent slide in comps. Still, the company faces many of the same structural challenges as other retailers as comparable sales at its full-line store continue to fall.

Management lowered the top end of its full-year EPS guidance from $2.85-$3.00 to a range of $2.85-$2.95, a sign that holiday-quarter expectations are conservative. Given the more modest guidance, the stock's valuation may be getting stretched if it moves higher without any improvement in the company's underlying performance. 

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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool recommends Nordstrom. The Motley Fool has a disclosure policy.