Nordstrom No Longer En Vouge: 4 Retail Stocks To Buy Instead

Investors want their portfolio to have stocks with a track record of better-than-expected results, surging share price and favorable recommendation. However, Nordstrom Inc. (NYSE:JWN) has failed to meet any of these criteria and is no longer in investors’ good books. Nordstrom remains deeply entrenched in the bearish territory as the stock has lost its value by nearly 28% in the past six months.

This fashion specialty retailer of apparel, shoes, cosmetics and accessories has been witnessing a downtrend in the Zacks Consensus Estimate. Moreover, the company currently carries a Zacks Rank #5 (Strong Sell). This implies that analysts covering the stock are not hopeful about Nordstrom’s performance in the near future.

Nordstrom Fundamentally Weak

Nordstrom commenced fiscal 2016 on a downbeat note, continuing with its disappointing performance in the fiscal first quarter, wherein both the top and the bottom lines lagged estimates for the third time in a row. Earnings plunged sharply year over year, bearing the brunt of lower-than-anticipated sales and soft margins that stemmed from higher markdowns so as to efficiently align inventory with the existing trends. These factors also led the company to lower its earnings and sales projections for fiscal 2016. A competitive retail landscape and consumers’ cautionary approach while purchasing discretionary items are also weighing on the stock’s performance. (Read more: Nordstrom Cuts View on Q1 Earnings Miss; Stock Down)

Nordstrom’s Numbers Are Not of Any Help Either

Nordstrom continued with its dismal run, posting a negative earnings surprise of 42.2% in the first quarter of fiscal 2016, after an earnings miss of 4.1% and 19.7% in the fourth and third quarters of fiscal 2015, respectively. In the trailing four quarters, the company underperformed the Zacks Consensus Estimate by an average of 15.7%.

Nordstrom’s fiscal first-quarter earnings of 26 cents a share came in way below the Zacks Consensus Estimate of 45 cents and declined 60.6% from the prior-year quarter figure of 66 cents. Following the disappointing performance, the company lowered its outlook for fiscal 2016. Management now envisions fiscal 2016 earnings per share in the range of $2.50–$2.70, down from $3.10–$3.35 expected earlier.

Consequently, the Zacks Consensus Estimate of $2.55 and $2.87 for fiscal 2016 and fiscal 2017 has dropped 63 cents and 64 cents, respectively, over the past 30 days. Moreover, the Zacks Consensus Estimate for the second quarter has decreased 16 cents to 56 cents over the same time frame.

With Nordstrom’s share price tumbling and estimates witnessing downward revisions, it may not be prudent to keep the stock in your portfolio, at least for the time being. Rather, you can shift your focus to better-ranked retail stocks that are backed by a sound Zacks Consensus Estimate revision, a VGM Score of “A” and sturdy fundamentals.

4 Prominent Picks

We suggest investing in Lowe's Companies, Inc. (NYSE:LOW) , which holds a Zacks Rank #2 (Buy) and has a VGM Score of “A” and long-term earnings growth rate of 15.6%. The Mooresville, NC-based company delivered an average positive earnings surprise of 0.6% over the trailing four quarters. This home improvement retailer is expected to witness earnings growth of 22.6% in fiscal 2016 and 15.9% in fiscal 2017. The Zacks Consensus Estimate too moved up over the past 30 days.

Burlington Stores, Inc. (NYSE:BURL) with a Zacks Rank #2 and long-term earnings growth rate of 17.7% is a solid bet. This Burlington, NJ based retailer of branded apparel products delivered an average positive earnings surprise of 23.2% over the trailing four quarters and has a VGM Score of “A”. It is expected to witness earnings growth of 21.5% in fiscal 2016 and 16.5% in fiscal 2017. The Zacks Consensus Estimate too has been on the rise over the past 30 days.

Another stock that deserves a place in your portfolio is The Home Depot, Inc. (NYSE:HD) , which has a Zacks Rank #2, a long-term earnings growth rate of 13.7% and a VGM Score of “A”. This Atlanta, GA based home improvement retailer delivered an average positive earnings surprise of 4.2% over the trailing four quarters. It is expected to witness earnings growth of 16.5% in fiscal 2016 and 13.1% in fiscal 2017. The Zacks Consensus Estimate too has been trending up over the past 30 days.

Last but certainly not the least addition to your portfolio can be BJ's Restaurants, Inc. (NASDAQ:BJRI) with a VGM Score of “A”. This operator of casual dining restaurants carries a Zacks Rank #2 and has a long-term earnings growth rate of 17.9%. This Huntington Beach, CA based company delivered an average positive earnings surprise of 18.5% over the trailing four quarters. The company is expected to witness earnings growth of 22.1% in 2016 and 13.6% in 2017. The Zacks Consensus Estimate too has been rising over the past 60 days.