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Nordstrom (JWN) Q2 Earnings & Sales Top, Stock Jumps 2.8%

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Nordstrom Inc. (JWN - Free Report) posted solid second-quarter fiscal 2017 results, wherein both earnings and sales topped estimates. While the company delivered positive earnings surprise for the fifth straight quarter, sales beat estimates after three consecutive misses.

This led to shares of this leading fashion specialty retailer jump nearly 2.8% in the after-hours trading session. Further, we note that Nordstrom has gained 8.9% in the last three months, outperforming the industry’s fall of 13.1%.



Nordstrom’s quarterly adjusted earnings of 65 cents per share came substantially ahead of the Zacks Consensus Estimate of 62 cents. Further, bottom-line results also matched the company’s expectations.

Nordstrom, Inc. Price, Consensus and EPS Surprise

 

Nordstrom, Inc. Price, Consensus and EPS Surprise | Nordstrom, Inc. Quote

Revenue

Total revenue advanced 3.9% to $3,793 million and topped the Zacks Consensus Estimate of $3,732.1 million.

The company’s net Retail sales increased 3.5% to $3,717 million, while Credit Card revenues rose 28.8% to $76 million. Total company comps rose 1.7% driven by comps growth at both full-line and Rack stores.

Retail sales gained from relatively stronger performance at Nordstrom’s Anniversary sale, which happens to be its largest event for the year. Further, smooth execution of the company’s customer strategy, along with disciplined inventory and expense management, aided results.

Moreover, the company’s fiscal second-quarter results reflected significant progress on its digital strategy. Notably, it delivered online sales growth of 20% at Nordstrom.com and a 27% increase at Nordstromrack.com/HauteLook.

Net sales at Nordstrom full-line stores (including the U.S. and Canada full-line stores, Nordstrom.com and Trunk Club) rose 2.4%, with comps growth of 1.4%. The top-performing region during the quarter was East, while the best-performing categories were Women's Apparel and Beauty.

Coming to Nordstrom Rack (that includes Nordstrom Rack stores and nordstromrack.com/HauteLook) net sales advanced 9.8%, while comps grew 3.1% on the back of growth in the Eastern region.

Operational Update

Nordstrom's Retail gross profit margin contracted 25 basis points (bps) to 34.1%, mainly on account of increased occupancy expenses linked to new store expansion for Nordstrom Rack and in Canada, as well as higher loyalty expenses during the Anniversary Sale. This was partly mitigated by superior merchandise margins driven by more full-price selling.

Selling, general and administrative (SG&A) expenses, as a percentage of sales, rose 46 bps to 30.3%, driven by planned technology and supply chain expenses related to the company's growth efforts.

Store Update

In the fiscal second-quarter, the company opened one new Nordstrom Rack store at Vintage Oaks Shopping Center in Novato, CA. Year to date, the company inaugurated a total of six new Rack stores while it closed one full-line store.

As of Aug 11, 2017, Nordstrom operated 354 stores in 40 states, including 122 full-line stores in the U.S., Canada and Puerto Rico; 221 Rack outlets, two Jeffrey boutiques and two clearance stores.

Financials

Nordstrom ended the fiscal second quarter with cash and cash equivalents of $919 million, long-term debt net of current liabilities of $2,729 million and total shareholders’ equity of $785 million.

In first-half fiscal 2017, Nordstrom generated $574 million in cash from operating activities and free cash flow of $115 million. Capital expenditures during the first six months of fiscal 2017 were $341 million.

Guidance

Following second-quarter fiscal 2017 results, the company updated its previously stated guidance for fiscal 2017. It now anticipates net sales growth of nearly 4% for fiscal 2017, which is at the high-end of its previous guidance of nearly 3–4% growth. However, it reiterated its view of nearly flat comps for the fiscal.

Further, the company raised the lower-end of its previously stated Retail EBIT guidance. It now expects Retail EBIT in the range of $790–$840 million, compared with $780–$840 million anticipated earlier. This reflects higher increased occupancy expenses linked to new stores (Nordstrom Rack, Canada and Manhattan flagship men's store), alongside increased supply chain and technology costs. Meanwhile, Credit EBIT is now estimated to be about $145 million, versus the earlier forecast of about $140 million.

Based on the above iterations, the company now envisions fiscal 2017 earnings per share in the range of $2.85–$3.00, compared with $2.75–$3.00 projected earlier. The company’s guidance includes the impact of the additional 53rd week in fiscal 2017, which is likely to add about $200 million to net sales and 2–3 cents to earnings per share.

Zacks Rank & Other Key Picks

Nordstrom currently carries a Zacks Rank #2 (Buy). Other top-ranked stocks in the retail sector include Canada Goose Holdings Inc. (GOOS - Free Report) , The Gap Inc. (GPS - Free Report) and Build-A-Bear Workshop, Inc. (BBW - Free Report) , each carrying a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Canada Goose has gained nearly 13.9% in the last six months. Moreover, it has a long-term earnings growth rate of 47%.

Gap, with a long-term earnings growth rate of 8%, has gained nearly 8.7% in the last one month.

Build-A-Bear with long-term EPS growth rate of 22.5%, has delivered an average positive earnings surprise of 73.7% in the trailing four quarters.

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