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Nordstrom's (JWN) Q1 Earnings Beat, Soft Comps Hurt Stock

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Nordstrom Inc. (JWN - Free Report) reported solid top- and bottom-line numbers for first-quarter fiscal 2018 as both earnings and sales beat estimates. Results gained from the shift in Nordstrom’s loyalty event to the first quarter this year. This marked the company’s fourth earnings beat in the last five quarters and the third positive sales surprise in four quarters. However, the company’s comparable store sales (comps) were softer-than-anticipated due to soft off-price sales, reflecting from outsized digital growth.

Shares of this leading fashion-specialty retailer have declined nearly 7% in the after-hours trading, mainly on the soft comps performance. However, the stock has rallied 9% in the past month, outperforming the industry’s gain of 1.8%.



Nordstrom’s adjusted earnings of 51 cents per share for first-quarter fiscal 2018 surpassed the Zacks Consensus Estimate of 42 cents. Additionally, earnings improved 37.8% year over year from 37 cents per share in the prior-year quarter.

Nordstrom, Inc. Price, Consensus and EPS Surprise

 

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

Revenues

Total revenues advanced 6.2% to $3,561 million, outpacing the Zacks Consensus Estimate of $3,468 million. Top-line gains stemmed from a shift of Nordstrom’s loyalty event to the first quarter in 2018, compared with the second quarter in the prior-year.

While the company’s net Retail sales increased 5.8% to $3,469 million, Credit Card revenues surged 22.7% to $92 million. However, total comps inched up 0.6%, which reflected significant slowdown from the preceding quarters.

Nonetheless, the company’s results reflected a marked progress on its digital strategy. Notably, its digital sales improved 18% for the quarter under review. Further, digitally-enabled sales contribution increased to 29% in the first quarter compared with 25% in the prior-year quarter.

Nordstrom full-price sales (including the U.S. full-line stores, Nordstrom.com, the Canadian operation, Trunk Club, Jeffrey and Nordstrom Local) were up 3.9%, with comps growth of 0.7%. Meanwhile, the company’s off-price sales (including Nordstrom U.S. Rack stores, Nordstromrack.com/HauteLook and Last Chance clearance stores) advanced 6.7% while comps increased 0.4%

Operational Update

Nordstrom's Retail gross-profit margin contracted 21 basis points (bps) to 34.1%, mainly on account of increased occupancy expenses related to new-store openings for both U.S. and Canada Rack as well as planned pre-opening expenses related to its first Men’s store in New York City. Further, the company had solid inventory position at the end of the reported quarter as net sales growth exceeded 2% decline in inventory. Additionally, merchandise margins were in line with expectations and the prior year, reflecting persistent momentum in regular price selling trends.

Selling, general and administrative (SG&A) expenses, as a percentage of sales, increased 32 bps to 32.3%, mainly driven by planned pre-opening expenses related to the launch of its first Men’s store in New York City.

Store Update

Year-to-date, in fiscal 2018, Nordstrom opened eight new stores and closed one. As of May 5, 2018, the company operated 373 stores in 40 states. These include 122 full-line stores in the United States, Canada and Puerto Rico, 239 Rack outlets, two Jeffrey boutiques, two clearance stores, seven Trunk Club clubhouses as well as Nordstrom Local service concept.

Financials

Nordstrom ended the reported quarter with cash and cash equivalents of $966 million, long-term debt (net of current liabilities) of $2,680 million and total shareholders’ equity of $1,070 million.

The company remains committed to its capital allocation plan, which includes reinvesting in its business and returning value to shareholders. As part of the plan, the company anticipates capital expenditure of $3.2 billion or 4% of sales, mainly directed toward investments in digital capabilities and new market opportunities in Manhattan and Canada. Further, the company plans to return value to shareholders through dividend payments and share repurchases.

In first-quarter fiscal 2018, the company bought back 0.3 million shares for $13 million. Following this, nearly $401 million remained under the current buyback authorization. Additionally, the company announced a quarterly dividend of 37 cents per share.

Nordstrom used $28 million cash in operating activities and generated negative free cash flow of $130 million in first-quarter fiscal 2018. Capital expenditures for the reported quarter were $129 million.

Guidance

Based on first-quarter results, the company updated its outlook for fiscal 2018. While it retained the sales view, the company raised the low-end of its EBIT and earnings per share projections. It anticipates net sales of $15.2-$15.4 billion with comps growth of 0.5-1.5%.

This Zacks Rank #2 (Buy) company now expects EBIT of $895-$940 million compared with the previous guidance of $885-940 million.

Based on the above iterations, the company now envisions fiscal 2018 earnings per share to be $3.35-$3.55 versus the prior guidance of $3.30-$3.55.

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