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Nordstrom (JWN) Down 3.4% Since Last Earnings Report: Can It Rebound?

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It has been about a month since the last earnings report for Nordstrom (JWN - Free Report) . Shares have lost about 3.4% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Nordstrom due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Nordstrom’s Q1 Earnings Miss, FY19 View Cut

Nordstrom reported lower-than-expected results for first-quarter fiscal 2019. While the company’s earnings missed the Zacks Consensus Estimate after four consecutive beats, sales lagged for the second straight quarter. Both the top and bottom line also decreased on a year-over-year basis.

Results were hurt by soft sales trends in full-price stores during the fourth quarter, which continued into the quarter under review. Consequently, management slashed its view for the fiscal year.

Q1 Highlights

In the quarter under review, Nordstrom’s earnings of 23 cents per share lagged the Zacks Consensus Estimate of 43 cents. The bottom line also declined 54.9% year over year.

Total quarterly revenues fell 3.3% to $3,443 million and also missed the Zacks Consensus Estimate of $3,542 million. While the company’s net Retail sales dropped 3.5% to $3,349 million, Credit Card net revenues rose 2.2% to $94 million. Notably, the top line was hurt by the company’s loyalty program, digital marketing and merchandise. This, in turn, led to declines across the full-Price and off-Price businesses, in stores and online.

Furthermore, 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 5.1% to $2,127 million in the fiscal first quarter. The company’s off-price net sales (including Nordstrom U.S. Rack stores, Nordstromrack.com/HauteLook and Last Chance clearance stores) too dipped 0.6% to $1,222 million.

Meanwhile, the company’s digital sales grew 7% and represented 31% of the overall net sales. Nordstrom also witnessed impressive growth in digital sales and store traffic in its Los Angeles market.

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 remains on track to boost growth by resolving executional issues with respect to the launch of its loyalty program, investments in digital marketing and enhancement of merchandise assortment to fulfil customer expectations.  It has also been focusing on cost-containment efforts and is ahead of its plans to accomplish savings of $150-$200 million in fiscal 2019.

Operational Update

Nordstrom's gross profit margin contracted 60 basis points (bps) to 33.5% mainly on account of anticipated markdowns to realign inventory to sales trends and higher occupancy expenses.

Selling, general and administrative (SG&A) expenses, as a percentage of sales, rose 168 bps to 34% primarily owing to higher fixed costs on lower sales.

Store Update

As of May 4, 2019, Nordstrom operated 380 stores across 40 states. These include 119 full-line stores in the United States, Canada and Puerto Rico, 247 Nordstrom Rack outlets, three Jeffrey boutiques, two clearance stores, six Trunk Club clubhouses as well as three Nordstrom Local service concepts.

Financials

Nordstrom ended the quarter with cash and cash equivalents of $448 million, long-term debt (net of current liabilities) of $2,177 million and total shareholders’ equity of $651 million.

Nordstrom used $31 million of net cash by operating activities and spent $249 million as capital expenditures as of May 4, 2019. At the end of the fiscal first quarter, it had negative free cash flow of $240 million.

Moreover, the company bought back 4.1 million shares for $186 million in the quarter under review. Following this, nearly $707 million remained under the current buyback authorization. Additionally, it paid cash dividends worth $58 million.

Guidance

Following the dismal quarterly performance, management lowered its guidance for fiscal 2019. The company now estimates net sales to remain flat to down 2% against increase of 1-2% projected earlier. Credit card revenues, net, are now expected to grow in the range of low to mid-single digit versus mid to high single-digit growth.

Further, the company expects EBIT of $805-$890 million, while EBIT margin is anticipated to be 5.3-5.8%. Previously, the company projected the metric in the band of $915-$970 million, with EBIT margin of 5.9-6.1%.

Consequently, the company envisions adjusted earnings per share of $3.25-$3.65 for fiscal 2019 compared with $3.65-$3.90 guided earlier.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -18.47% due to these changes.

VGM Scores

At this time, Nordstrom has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Nordstrom has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.


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