Expansion Plans May Hit Nordstrom’s 1Q15 Earnings
What's in Store for Nordstrom Investors in 1Q15?
Nordstrom’s aggressive investment plans
Nordstrom (JWN) has planned capital expenditures, net of property incentives, of $1.2 billion in fiscal 2015, up from $751 million in fiscal 2014. Nordstrom is investing heavily in store expansion, international growth, digital channels, store remodeling, and fulfillment centers. The company’s growth investments are expected to adversely impact its bottom line.
Nordstrom expects growth of its diluted earnings per share (or EPS) in the first half of fiscal 2015 to fall below its full-year outlook range of a 2.0% decrease and a 2.0% increase. This is mainly due to store pre-opening expenses and the impact of the Trunk Club acquisition. Nordstrom acquired the Trunk Club, a men’s clothing and personal styling company, in August 2014.
Nordstrom misses 4Q14 expectations
Nordstrom’s 4Q14 adjusted EPS, which excludes the impact of one-time items, declined by 3.6% to $1.32 from the comparable quarter of the previous year. The company’s adjusted earnings lagged behind analysts’ estimates of $1.35. Expenses related to the Trunk Club acquisition and investments in technology and fulfillment centers adversely impacted fourth quarter earnings. Nordstrom makes up ~0.5% of the Consumer Discretionary Select Sector SPDR Fund (XLY).
Rival department store Kohl’s (KSS) saw its 4Q14 adjusted EPS increase by 17.3% to $1.83, backed by improved same-store sales. Sears (SHLD) reported an adjusted loss per share of $0.34 compared to a loss of $0.89 in the comparable quarter of the previous year. Adjusted earnings of Nordstrom’s off-price rival TJX Companies (TJX) increased by 14.8% to $0.93 in the fourth quarter, driven by higher sales.
Factors that will impact fiscal 2015 earnings
Nordstrom’s expansion in the Canadian market is expected to result in an estimated loss before interest and tax of $60.0 million in fiscal 2015, compared to a loss of $32.0 million in 2014. Part 4 of this series covers Nordstrom’s Canadian expansion plans.
Nordstrom’s earnings are also expected to be adversely impacted by $30.0 million of expenses related to the company’s growth initiatives. This includes a third fulfillment center and an expanded loyalty program. The Trunk Club acquisition is also expected to result in an EBIT (earnings before interest and taxes) loss of ~30.0 million compared to a loss of $25.0 million in fiscal 2014.
Higher expenses and expansion plans are also expected to bring down margins, as we’ll see in the next article.
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