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Nordstrom's (JWN) Q4 Earnings Beat Estimates, Revenues Miss

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Nordstrom, Inc. (JWN - Free Report) reported mixed financial numbers for fourth-quarter fiscal 2018. While the company’s revenues missed the Zacks Consensus Estimate after beating in three consecutive quarters, earnings surpassed the same marking four straight quarters of beat. The bottom line also increased on a year-over-year basis. Additionally, management provided guidance for fiscal 2019. Markedly, shares of this Seattle, WA-based company have increased 1.2% in the after-market trading session on Feb 28.

In a month’s time, this Zacks Rank #3 (Hold) stock belonging to the Retail- Apparel and Shoes industry has gained 2.6% compared with the S&P 500’s growth of 5.3%.

Q4 Highlights

In the quarter under review, Nordstrom’s earnings per share of $1.48 outpaced the Zacks Consensus Estimate of $1.42 and increased 23.3% year over year. This year-over-year improvement was driven by lower tax expenses related to corporate tax reform.

Total quarterly revenues decreased 4.6% to $4,484 million and also missed the Zacks Consensus Estimate of $4,630 million. While the company’s net Retail sales decreased 4.7% to $4,383 million, Credit Card net revenues were almost in line at $101 million.

Excluding sales of around $220 million in the 53rd week of 2017, the top line increased 0.1% on a like-for-like basis in fourth-quarter fiscal 2018. Moreover, total comparable sales (comps) in the reported quarter improved 0.1%.

Nordstrom is focused on attaining long-term targets that support strategic efforts to drive shareholder returns. This includes improving returns and profitability, gains in market share and disciplined capital allocation.

Further, the company’s customer strategy that focuses on three strategic factors — leveraging its brand’s strength, providing excellence services and offering compelling products — is encouraging. In 2018, Nordstrom saw progress on its digital strategy as digital sales improved 16%, representing about 30% of sales growth. Further, its generational investments contributed roughly $2 billion to sales growth and surpassed the company’s bottom-line expectation. Moreover, the company expects generational investments to contribute approximately $2.2 billion to sales in fiscal 2019.

Nordstrom’s full-price net sales (including the U.S. full-line stores, Nordstrom.com, the Canadian operation, Trunk Club, Jeffrey and Nordstrom Local) decreased 8.8% to $2,985 million in the fiscal fourth quarter, with comps down 1.6%. The company’s off-price net sales (including Nordstrom U.S. Rack stores, Nordstromrack.com/HauteLook and Last Chance clearance stores) declined 2.7% to $1,398 million, while comps increased 4%.

Operational Update

Nordstrom's gross profit margin contracted 33 basis points (bps) to 35.1% mainly on account of increased markdowns resulting from soft sale trends in Full-Price stores and increased promotions.

Selling, general and administrative (SG&A) expenses, as a percentage of sales, decreased 23 bps to 29.8% primarily owing to better expenses management.

Store Update

As of Feb 2, 2019, Nordstrom operated 379 stores across 40 states. These include 121 full-line stores in the United States, Canada and Puerto Rico, 244 Nordstrom Rack outlets, three Jeffrey boutiques, two clearance stores, six Trunk Club clubhouses as well as three Nordstrom Local service concepts.

Financials

Nordstrom ended fiscal 2018 with cash and cash equivalents of $957 million, long-term debt (net of current liabilities) of $2,677 million and total shareholders’ equity of $873 million.

Nordstrom generated $1,296 million of net cash by operating activities and spent $654 million as capital expenditures as of Feb 2, 2018. In fiscal 2018, it generated free cash flow of $642 million.

Moreover, the company bought back 14.3 million shares for $702 million in fiscal 2018. Following this, nearly $893 million remained under the current buyback authorization.

On Feb 27, it announced a quarterly cash dividend of 37 cents per share, which is payable Mar 26, 2019, to its shareholders of record as of Mar 11.

Guidance

Management issued an encouraging guidance for fiscal 2019. The company estimates net sales growth of 1-2%, with mid to high single-digit growth for credit card revenues.

Further, the company expects EBIT of $915-$970 million, while EBIT margin is anticipated to be 5.9-6.1%.

Consequently, the company envisions adjusted earnings per share of $3.65-$3.95 for fiscal 2019. The Zacks Consensus Estimate for the fiscal year is pegged at $3.66, which is near to the lower end of the company’s guidance.

3 Stocks to Watch

Zumiez Inc. (ZUMZ - Free Report) delivered average positive earnings surprise of 13.3% in the trailing four quarters. It has a long-term earnings growth rate of 12.5% and a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

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