Nordstrom Inc. JWN has picked the momentum following the encouraging sales and comparable store sales (comps) numbers for the combined months of November and December, which mainly comprises the holiday season. As a result, investors grew optimistic about this leading fashion specialty retailer pertaining to the positive sentiment building around retail stocks on the robust holiday show.

Nordstrom has gained 9.4% in the past month against the industry’s decline of 1.1%. Looking back, the company had considerably underperformed the broader industry in the last six months due to a bumpy top-line graph.

Notably, the company delivered a negative sales surprise in six of the trailing nine quarters. While it is appropriate to note that Nordstrom’s overall sales was ahead of estimates in the last two quarters, the outperformance was not significant. Meanwhile, its top line remains challenged due to decelerating rate of sales growth at Nordstrom Rack in recent quarters and soft sales at full-line stores. Additionally, the company has witnessed soft comps of late.

Precisely, Nordstrom Rack’s rate of sales growth slowed down considerably from 10.7% in the final quarter of fiscal 2016 to 5.5% in third quarter of fiscal 2017. Also, sales at full-line stores have declined in three of the last four quarters.

How Top-Line Trends Changed in Holiday Period?

Nordstrom’s holiday period sales reflected a modest improvement from the aforementioned trend, which raises optimism for the fourth quarter. While sales improved 2.5% in the holiday period (nine weeks ended Dec 30, 2017), comps rose 1.2%. Top line gains can mainly be attributed to growth in Nordstrom’s full-line and Rack stores compared with the year-to-date sales performance. Further, persistent strength in e-commerce at and aided results.

The company’s full-line and Rack businesses reported sales growth of 0.7% and 8.2%, respectively. Additionally, comps were up 1% for Nordstrom full-line and increased 2.9% for Nordstrom Rack.

Clearly, the performance of both Nordstrom full-line and Rack stores reflect an improvement from the strained trends in recent quarters.

Revival of Sales Trend Lifts Outlook

Encouraged by the robust holiday show, Nordstrom expects sales growth of nearly 4.2% in fiscal 2017 including the 53rd week. Comps are likely to gain 0.5%. This compares with the company’s previous expectation of 4% sales growth and flat comps.

Moreover, the company anticipates earnings in the range of $2.90-$2.95 per share, marking an increase from the prior guidance of $2.85-$2.95 per share. The revised guidance assumes strong sales growth, persistent stability in merchandise margins and higher supply chain, technology, and occupancy costs related to the company’s growth initiatives.

Consequently, the Zacks Consensus Estimate for the fourth quarter and fiscal 2017 as well as for fiscal 2018 moved north in the last 30 days. Estimates for both the current quarter and fiscal 2017 moved up by 3 cents each to $1.23 and $2.93 per share, respectively. Meanwhile, it climbed 23 cents to $3.08 per share for fiscal 2018.

Bottom Line

Clearly, Nordstrom’s revenue graph witnessed an improvement in the holiday season. This is likely to aid growth in the fourth quarter and ahead as evident from the optimistic guidance for fiscal 2017 and the resulting uptrend in estimates. This makes us hopeful about the company’s future potential. Rightly, the stock carries a Rank #2 (Buy).

Looking for More? Check These Retail Picks

Investors interested may consider American Eagle Outfitters Inc. AEO, Zumiez Inc. ZUMZ and Urban Outfitters Inc. URBN. All the stocks flaunt a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

American Eagle delivered an average positive earnings surprise of 2.6% in the trailing four quarters. It has a long-term earnings growth rate of 7.5%.

Zumiez pulled off an average positive earnings surprise of 22.2% in the trailing four quarters. In addition, it has a long-term earnings growth rate of 18%.

Urban Outfitters delivered an average positive earnings surprise of 5.6% in the trailing four quarters. It has a long-term earnings growth rate of 12%.

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