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Nordstrom (JWN) Up on Q2 Earnings Beat & Higher FY18 Outlook
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Shares of Nordstrom, Inc. (JWN - Free Report) jumped nearly 9% after the company delivered solid top- and bottom-line performance in second-quarter fiscal 2018. Both earnings and sales outpaced the Zacks Consensus Estimate and improved year over year. With this, the company marked its eighth earnings beat in the last nine quarters, with a second consecutive positive sales surprise. Further, management raised its outlook for the fiscal year.
Moreover, the company has been benefiting from its significant progress on customer-based strategy, which is on track to reach the long-term growth targets. Nordstrom is also executing its strategy of enhancing market share through persistent store expansion and strengthening capabilities via further investments, particularly in digital growth.
Year to date, this Zacks Rank #3 (Hold) stock has gained 10.4%, outperforming the industry’s 2.9% growth.
Q2 Highlights
In the reported quarter, Nordstrom’s earnings per share came in at 95 cents outpacing the Zacks Consensus Estimate of 84 cents. The bottom line also improved 46.2% year over year from 65 cents per share in the prior-year quarter. The upside can be attributed to higher sales, lower effective tax rate and gains from the new revenue recognition standard, which relates to the timing of the Anniversary Sale.
Total revenues advanced 7.2% to $4,067 million, which exceeded the Zacks Consensus Estimate of $3,987 million. While the company’s net Retail sales increased 7.1% to $3,980 million, Credit Card net revenues grew 14.5% to $87 million. Also, sales from Nordstrom Rewards customers contributed roughly 58% to the overall quarterly sales, up from 56% in the year-earlier period.
Top-line gains stemmed from a favorable shift of roughly 100 basis points (bps), courtesy of the new revenue recognition standard. However, this effect is likely to reverse in the third quarter. Total comparable store sales (comps) in the reported quarter increased 4%.
Notably, Nordstrom’s quarterly numbers reflected a marked progress on its digital strategy. The company’s digital sales improved 23% in the fiscal second quarter. Further, digitally-enabled sales contribution increased to 34%, up from 29% in the prior-year quarter. Nordstrom also witnessed robust digital demand on the first day of the Anniversary Sale, which grew by 80% from the previous high.
However, Nordstrom full-price sales (including the U.S. full-line stores, Nordstrom.com, the Canadian operation, Trunk Club, Jeffrey and Nordstrom Local) declined 5%, while comps grew 4.1%. Meanwhile, the company’s off-price sales (including Nordstrom U.S. Rack stores, Nordstromrack.com/HauteLook and Last Chance clearance stores) advanced 7.1%, while comps increased 4%.
Nordstrom's Retail gross-profit margin expanded 91 basis points (bps) to 35%, mainly on account of a favorable shift owing to the impact of the new revenue recognition standard. Nonetheless, the increase is anticipated to reverse in the third quarter. Higher product margins and lower occupancy expenses also aided margins.
Selling, general and administrative (SG&A) expenses, as a percentage of sales, increased 71 bps to 31%, mainly driven by rise in supply chain costs and the Anniversary Sale. Meanwhile, Nordstrom remains on track to accomplish its planned mid-single-digit improvement in SG&A expenses in fiscal 2018.
Store Update
To date in fiscal 2018, Nordstrom introduced eight and closed two stores, and relocated a store. As of Aug 16, 2018, the company operated 372 stores across 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, six Trunk Club clubhouses as well as Nordstrom Local service concept.
Financials
Nordstrom ended the quarter with cash and cash equivalents of $1,343 million, long-term debt (net of current liabilities) of $2,680 million and total shareholders’ equity of $1,140 million.
In the first half of fiscal 2018, the company bought back 1.8 million shares for $87 million. Following this, nearly $327 million remained under the current buyback authorization. Nordstrom also paid cash dividends of $124 million in the same period.
Nordstrom generated $594 million of net cash by operating activities and free cash flow of $388 million in the six months of fiscal 2018. Capital expenditures totaled $269 million in the first half of fiscal 2018.
Guidance
Following solid first-half results, management raised its earnings per share and sales guidance for fiscal 2018. Net sales are now projected in the band of $15.4-$15.5 billion, up from $15.2-$15.4 billion, guided earlier. Comps growth is forecasted in the range of 1.5-2%, up from 0.5-1.5% range projected earlier. Credit card revenues are still expected to grow in mid teens.
Further, the company expects EBIT of $925-$960 million compared with the previous guidance of $895-940 million. Management expects the third quarter to contribute roughly 30% to EBIT and the fourth quarter to represent about 70%. Also, it expects deleverage in EBIT margin owing to fixed expenses and an unfavorable shift of $30 million, whereas fourth-quarter EBIT is likely to gain from increased sales and a favorable comparison from employee investment.
Based on the above iterations, the company now envisions fiscal 2018 earnings per share to be $3.50-$3.65 compared with the prior guidance of $3.35-$3.55. The Zacks Consensus Estimate for the fiscal is pegged at $3.44, which is likely to witness upward revisions in the coming days.
Dollar Tree, Inc. (DLTR - Free Report) has a long-term earnings growth rate of 15%. The company carries a Zacks Rank #2 (Buy).
Dollar General Corporation (DG - Free Report) , also a Zacks Rank #2 stock, has a long-term earnings growth rate of 14.6%.
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With battery prices plummeting and charging stations set to multiply, one company stands out as the #1 stock to buy according to Zacks research.
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Nordstrom (JWN) Up on Q2 Earnings Beat & Higher FY18 Outlook
Shares of Nordstrom, Inc. (JWN - Free Report) jumped nearly 9% after the company delivered solid top- and bottom-line performance in second-quarter fiscal 2018. Both earnings and sales outpaced the Zacks Consensus Estimate and improved year over year. With this, the company marked its eighth earnings beat in the last nine quarters, with a second consecutive positive sales surprise. Further, management raised its outlook for the fiscal year.
Moreover, the company has been benefiting from its significant progress on customer-based strategy, which is on track to reach the long-term growth targets. Nordstrom is also executing its strategy of enhancing market share through persistent store expansion and strengthening capabilities via further investments, particularly in digital growth.
Year to date, this Zacks Rank #3 (Hold) stock has gained 10.4%, outperforming the industry’s 2.9% growth.
Q2 Highlights
In the reported quarter, Nordstrom’s earnings per share came in at 95 cents outpacing the Zacks Consensus Estimate of 84 cents. The bottom line also improved 46.2% year over year from 65 cents per share in the prior-year quarter. The upside can be attributed to higher sales, lower effective tax rate and gains from the new revenue recognition standard, which relates to the timing of the Anniversary Sale.
Total revenues advanced 7.2% to $4,067 million, which exceeded the Zacks Consensus Estimate of $3,987 million. While the company’s net Retail sales increased 7.1% to $3,980 million, Credit Card net revenues grew 14.5% to $87 million. Also, sales from Nordstrom Rewards customers contributed roughly 58% to the overall quarterly sales, up from 56% in the year-earlier period.
Top-line gains stemmed from a favorable shift of roughly 100 basis points (bps), courtesy of the new revenue recognition standard. However, this effect is likely to reverse in the third quarter. Total comparable store sales (comps) in the reported quarter increased 4%.
Notably, Nordstrom’s quarterly numbers reflected a marked progress on its digital strategy. The company’s digital sales improved 23% in the fiscal second quarter. Further, digitally-enabled sales contribution increased to 34%, up from 29% in the prior-year quarter. Nordstrom also witnessed robust digital demand on the first day of the Anniversary Sale, which grew by 80% from the previous high.
However, Nordstrom full-price sales (including the U.S. full-line stores, Nordstrom.com, the Canadian operation, Trunk Club, Jeffrey and Nordstrom Local) declined 5%, while comps grew 4.1%. Meanwhile, the company’s off-price sales (including Nordstrom U.S. Rack stores, Nordstromrack.com/HauteLook and Last Chance clearance stores) advanced 7.1%, while comps increased 4%.
Nordstrom, Inc. Price, Consensus and EPS Surprise
Nordstrom, Inc. Price, Consensus and EPS Surprise | Nordstrom, Inc. Quote
Operational Update
Nordstrom's Retail gross-profit margin expanded 91 basis points (bps) to 35%, mainly on account of a favorable shift owing to the impact of the new revenue recognition standard. Nonetheless, the increase is anticipated to reverse in the third quarter. Higher product margins and lower occupancy expenses also aided margins.
Selling, general and administrative (SG&A) expenses, as a percentage of sales, increased 71 bps to 31%, mainly driven by rise in supply chain costs and the Anniversary Sale. Meanwhile, Nordstrom remains on track to accomplish its planned mid-single-digit improvement in SG&A expenses in fiscal 2018.
Store Update
To date in fiscal 2018, Nordstrom introduced eight and closed two stores, and relocated a store. As of Aug 16, 2018, the company operated 372 stores across 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, six Trunk Club clubhouses as well as Nordstrom Local service concept.
Financials
Nordstrom ended the quarter with cash and cash equivalents of $1,343 million, long-term debt (net of current liabilities) of $2,680 million and total shareholders’ equity of $1,140 million.
In the first half of fiscal 2018, the company bought back 1.8 million shares for $87 million. Following this, nearly $327 million remained under the current buyback authorization. Nordstrom also paid cash dividends of $124 million in the same period.
Nordstrom generated $594 million of net cash by operating activities and free cash flow of $388 million in the six months of fiscal 2018. Capital expenditures totaled $269 million in the first half of fiscal 2018.
Guidance
Following solid first-half results, management raised its earnings per share and sales guidance for fiscal 2018. Net sales are now projected in the band of $15.4-$15.5 billion, up from $15.2-$15.4 billion, guided earlier. Comps growth is forecasted in the range of 1.5-2%, up from 0.5-1.5% range projected earlier. Credit card revenues are still expected to grow in mid teens.
Further, the company expects EBIT of $925-$960 million compared with the previous guidance of $895-940 million. Management expects the third quarter to contribute roughly 30% to EBIT and the fourth quarter to represent about 70%. Also, it expects deleverage in EBIT margin owing to fixed expenses and an unfavorable shift of $30 million, whereas fourth-quarter EBIT is likely to gain from increased sales and a favorable comparison from employee investment.
Based on the above iterations, the company now envisions fiscal 2018 earnings per share to be $3.50-$3.65 compared with the prior guidance of $3.35-$3.55. The Zacks Consensus Estimate for the fiscal is pegged at $3.44, which is likely to witness upward revisions in the coming days.
Check These 3 Better-Ranked Retail Picks
Abercrombie & Fitch Co. (ANF - Free Report) delivered an average positive earnings surprise of 32.3% in the trailing four quarters and sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Dollar Tree, Inc. (DLTR - Free Report) has a long-term earnings growth rate of 15%. The company carries a Zacks Rank #2 (Buy).
Dollar General Corporation (DG - Free Report) , also a Zacks Rank #2 stock, has a long-term earnings growth rate of 14.6%.
Will You Make a Fortune on the Shift to Electric Cars?
Here's another stock idea to consider. Much like petroleum 150 years ago, lithium power may soon shake the world, creating millionaires and reshaping geo-politics. Soon electric vehicles (EVs) may be cheaper than gas guzzlers. Some are already reaching 265 miles on a single charge.
With battery prices plummeting and charging stations set to multiply, one company stands out as the #1 stock to buy according to Zacks research.
It's not the one you think.
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