Nordstrom Earnings Beat Estimates

Zacks

Upscale department store operator, Nordstrom Inc. (JWN) reported second-quarter fiscal 2013 earnings of 93 cents per share, outpacing the Zacks Consensus Estimate of 88 cents and surging 24.0% from 75 cents earned in the year-ago quarter. The growth was buoyed by improving sales trend along with prudent inventory management and cost containment efforts.

Total Revenue

Though Nordstrom witnessed moderate improvement in sales trend during the quarter, it remained below expectations.  

Total revenue rose 6.3% year over year to $3,196 million but fell short of the Zacks Consensus Estimate of $3,302 million. Total revenue reflected a 6.4% year-over-year increase in Net Retail sales to $3,104 million and a 4.5% increase in Credit Card revenues to $92 million.

Total comps increased 4.4% during the quarter against a gain of 4.5% in the year-ago quarter. The company registered 0.7% decline at its full-line stores, while comps at Nordstrom Rack jumped 2.4%. The company’s direct sales soared 37%, whereas Nordstrom Rack net sales rose 12%.  

Moreover, Nordstrom's comps (including full-line and direct businesses) shot up 4.2% during the quarter, driven by robust performances at Men’s Shoes and Apparel, and Kids’ Attire.

Operational Update

Driven by increased costs related to expansion of the Fashion Rewards customer loyalty program, Nordstrom's gross profit margin as a percentage of net sales at the retail segment contracted 13 basis points (bps) to 35.5%.

Total selling, general and administrative (SG&A) expenses inched up 2.4% to $857 million in the quarter.

Nordstrom's operating income increased nearly 15.5% to $335 million compared with $290 million reported in the prior-year period, while operating margin as a percentage of net sales expanded 90 bps to 10.8%.

Balance Sheet and Cash Flow

Nordstrom ended the quarter with cash and cash equivalents of $1,128 million compared with $1,258 million at the end of the year-ago quarter. Long-term debt was $2,715 million versus $3,133 million in the prior-year period. During the fiscal first half of 2013, Nordstrom generated $547 million in cash from operations.

Capital expenditures for six months ended as of Aug 3, 2013 were $427 million. During the quarter, the company bought back nearly 0.8 million shares for about $48 million. Currently, Nordstrom has about $979 million worth of shares remaining under its existing share repurchase authorization.

Store Update

Nordstrom declared plans to launch 14 new Rack stores and relocate 2 Rack stores and 1 full-line store during the rest of 2013. During the quarter, the company opened 3 Rack stores. At the end of the quarter, number of stores was 248 as against 231 at the end of the prior year quarter.

Guidance

Considering the second-quarter results, Nordstrom lowered its fiscal 2013 sales growth to about 3.0%–4.0%, down from the previous forecast of 4.0%–6.0%. The company also lowered its comparable-store sales guidance for fiscal 2013 to 2.0%–3.0% from 3.0%–5.0% projected earlier.

Management now expects interest expenses to decline in the range of $5–$10 million, against the previously guided figure of $5 million.

Further, the company lowered its fiscal 2013 earnings forecast to $3.60–$3.70 per share as compared with the earlier guidance of $3.65???$3.80. The current Zacks Consensus Estimate is pegged at $3.78 per share.

However, management projects SG&A expenses, as a percentage of sales, to rise 0 to 10 bps, against the earlier guidance of 0 to10 bps decline. Further, gross margin is expected to contract 30–40 bps year over year compared with the prior outlook of 10–30 bps decline.

Management expects tax rate to fall to 38.6% compared with the earlier guidance of 39.0%.

 Zacks Rank

Nordstrom currently carries a Zacks Rank #3 (Hold).Other stocks that are performing well in the retail-apparel/shoe sector include The Children (PLCE), Citi Trends, Inc. (CTRN) and DSW Inc. (DSW). All of them carry a Zacks Rank #2 (Buy).
 

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