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Can Nordstrom (JWN) Retain Positive Earnings Trend in Q2?

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Nordstrom, Inc. (JWN - Free Report) is slated to report second-quarter fiscal 2018 results on Aug 16, after the closing bell. In the last-reported quarter, it delivered a positive earnings surprise of 21.4%. Further, the company outpaced earnings estimates in seven of the last eight quarters. Nordstrom has delivered an average earnings beat of 7.4% in the trailing four quarters.

The Zacks Consensus Estimate for second-quarter fiscal 2018 is pegged at 83 cents, mirroring year-over-year growth of 27.7%. Moreover, the consensus mark has moved north by a penny in the last 30 days.

Nordstrom, Inc. Price and EPS Surprise

 

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

Let’s see how things are shaping up prior to the earnings announcement.

Factors at Play

Nordstrom’s constant efforts to enhance footprint and expand e-commerce capabilities are commendable. The company has been persistently focused on store-expansion strategy to gain market share and generate higher sales. Furthermore, Nordstrom has been smoothly progressing with its expansion in Canada. In fact, the company runs in coherence with the evolving retail industry, which is focused on offering a wide range of choices to the customers for enhancing their shopping experience. These endeavors are likely to drive Nordstrom’s top line and profitability. The company boasts of topping sales estimates in three of the trailing four quarters.

Notably, analysts polled by Zacks expect revenues of $3,992 million, up nearly 5.3% from second-quarter fiscal 2017.

Additionally, Nordstrom is making significant progress with respect to its customer-based strategy and is on track to reach long-term growth target of $20 billion by 2020. With regard to cost savings, the company plans to strike a balance between sales and expense growth. Further, management is making amendments to its operating model in response to the constant slowdown in mall traffic, resulting from customers’ shift to online shopping. Moreover, it is focused on advancing in the technology space by boosting e-commerce and digital networks, and improving its supply-chain channels and marketing efforts. These growth initiatives are likely to add value to the company’s fiscal second-quarter results.

Based on fiscal first-quarter results, the company raised the low-end of its EBIT and earnings per share projections for fiscal 2018 while reiterated the sales view. It anticipates net sales of $15.2-$15.4 billion with comps growth of 0.5-1.5%. Earnings per share are now envisioned to be $3.35-$3.55 compared with the prior guidance of $3.30-$3.55.

All these above-mentioned endeavors have raised investors’ confidence in the stock. Shares of this leading fashion retailer have rallied 10.9% year to date, outperforming the industry’s increase of 0.5%.

 



While Nordstrom’s growth strategy bodes well for the long term, investments related to occupancy, technology, supply chain and marketing expenses have resulted in increased near-term costs. Notably, SG&A expenses, as a percentage of sales, increased 32 bps, mainly driven by planned pre-opening expenses related to the launch of its first Men’s store in New York City. These higher costs have also been weighing on the company’s margins for the last few quarters. Notably, gross margin contracted 21 bps in the fiscal first quarter, after a decline of 42 bps, 12 bps and 25 bps witnessed in the fourth, third and second quarters of fiscal 2017, respectively. This remains a concern for the company and might dent its overall profitability.

All said, let’s wait and see what lies ahead of Nordstrom when it reports quarterly results.

What the Zacks Model Unveils

Our proven model shows that Nordstrom is likely to beat earnings estimates in the fiscal first quarter. This is because it has the right combination of the two ingredients — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Nordstrom has an Earnings ESP of +1.05% and a Zacks Rank #3, which make us confident of an earnings beat.

Other Stocks With Favorable Combination

Here are some other companies that you may want to consider as our model shows that these also have the right combination of elements to post an earnings beat:

Macy’s Inc. (M - Free Report) has an Earnings ESP of +0.21% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

American Eagle Outfitters, Inc. (AEO - Free Report) has an Earnings ESP of +4.88% and a Zacks Rank of 2.

The Gap Inc. (GPS - Free Report) has an Earnings ESP of +2.52% and a Zacks Rank #2.

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American Eagle Outfitters, Inc. (AEO) - free report >>

The Gap, Inc. (GPS) - free report >>

Nordstrom, Inc. (JWN) - free report >>

Macy's, Inc. (M) - free report >>

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