Nordstrom (JWN) Up 26% Since Last Earnings Report: Can It Continue?
A month has gone by since the last earnings report for Nordstrom (JWN). Shares have added about 26% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Nordstrom due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Nordstrom Gains as Q1 Earnings & Sales Beat Estimates
Nordstrom posted first-quarter fiscal 2023 results, wherein earnings and revenues surpassed the Zacks Consensus Estimate. The bottom line improved year over year, while the top line declined.
Results benefited from continued progress in its key initiatives, improved trends at Nordstrom Rack, gross margin expansion and supply-chain efficiencies. These were partly offset by the effects of the wind-down of its Canada business.
Nordstrom posted adjusted earnings of 7 cents per share against the year-ago quarter’s loss per share of 6 cents. Earnings per share also surpassed the Zacks Consensus Estimate of a loss of 12 cents.
Total revenues of $3,181 million declined 11.6% year over year but beat the Zacks Consensus Estimate of $3,113 million. Dismal revenues resulted from a 175-basis point (bps) adverse impact of the wind-down of Canada operations and an 11.9% decline in gross merchandise value (GMV). Sales were also hurt by declines across the Nordstrom and Nordstrom Rack banners.
Quarterly Highlights
Net sales fell 11.6% year over year to $3,064 million but surpassed our estimate of $3,012.8 million. Credit Card net revenues grew 14.7% year over year to $117 million and beat our estimate of $107.4 million.
In the first quarter of fiscal 2023, net sales for the Nordstrom banner decreased 11.4% from the year-ago quarter to $2,027 million but surpassed our estimate of $1,990.6 million. GMV declined 11.8% year over year for the Nordstrom banner in the fiscal first quarter. The Nordstrom banner’s net sales included a negative impact of 270 bps related to the wind-down of the Canada operations.
Sales at the Nordstrom Rack banner declined 11.9% year over year to $1,037 million but beat our estimate of $1,022.1 million. The elimination of store fulfillment for Nordstrom Rack digital orders starting from the third quarter of fiscal 2022 hurt fiscal first-quarter Rack banner net sales by 600 bps.
Digital sales plunged 17.4% year over year in the fiscal first quarter due to the elimination of store fulfillment for Nordstrom Rack digital orders in the third quarter of fiscal 2022 and the quitting of Trunk Club earlier in fiscal 2022. These actions hurt fiscal first-quarter digital sales by 800 bps. In the fiscal first quarter, digital sales contributed 36% to net sales.
Nordstrom's gross profit margin expanded 110 bps year over year to 33.8% for the reported quarter, mainly driven by the company’s focus on enhancing inventory productivity.
SG&A expenses, as a percentage of sales, increased 240 bps to 36%. The adjusted SG&A expense rate rose 120 bps due to deleverage from lower sales, offset by improved variable costs from supply-chain efficiency initiatives. Adjusted SG&A expenses excluded 120 bps related to a gain on the sale of the company's interest in a corporate office building and an impairment charge related to costs associated with the wind-down of Trunk Club in the first quarter of fiscal 2022.
Adjusted earnings before interest and taxes (EBIT) of $50 million rose 56.3% year over year in the fiscal first quarter. The adjusted EBIT margin expanded 70 bps in the fiscal first quarter to 1.6%.
Other Financials
Nordstrom ended the first quarter of fiscal 2023 with available liquidity of $1.4 billion, including $581 million of cash and cash equivalents, and $800 million available on its revolving credit facility. The company had long-term debt (net of current liabilities) of $2,608 million and total shareholders’ equity of $551 million as of Apr 29, 2023.
As of Apr 29, 2023, JWN’s net cash provided for operating activities was $16 million. The company spent $106 million on capital expenditures in the first quarter of fiscal 2023.
Nordstrom recently approved a dividend of 19 cents, payable Jun 14, to its shareholders of record as of May 30.
Outlook
Nordstrom is focused on enhancing customer experience, improving the Nordstrom Rack performance, increasing inventory productivity and progressing on its supply-chain optimization initiatives. The company is confident of the strength of its brands, and its ability to drive profitable growth and deliver long-term value to shareholders.
Management provided its outlook for fiscal 2023, including the 53rd week and the expected impact of the wind-down of Canada operations. JWN anticipates total revenues to decline 4-6% year over year in fiscal 2023, in-line with our estimate of 5% decline. Revenues are expected to include a 250-bps impact of the closing of the Canada operations and a nearly 130-bps gain from the 53rd week.
The EBIT margin is expected to be 1.5-2% of sales, including the impacts of the charges related to the closing of the Canada business. The adjusted EBIT margin is likely to be 3.7-4.2% of sales.
The company predicts an income tax rate of 6% for fiscal 2023, including a 2,100-bps impact of one-time charges for the Canada business wind-down. Adjusted earnings are envisioned in the band of $1.80-$2.20 per share, excluding the charges related to the Canada business wind-down. Earnings per share, including wind-down-related charges, are expected to be 60 cents to $1.00. The company’s earnings guidance excludes any potential share repurchase.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
VGM Scores
Currently, Nordstrom has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. 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. Notably, Nordstrom has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
Nordstrom is part of the Zacks Retail - Apparel and Shoes industry. Over the past month, Citi Trends (CTRN), a stock from the same industry, has gained 21.4%. The company reported its results for the quarter ended April 2023 more than a month ago.
Citi Trends reported revenues of $179.69 million in the last reported quarter, representing a year-over-year change of -13.7%. EPS of -$0.66 for the same period compares with $0.42 a year ago.
For the current quarter, Citi Trends is expected to post a loss of $0.83 per share, indicating a change of -167.7% from the year-ago quarter. The Zacks Consensus Estimate remained unchanged over the last 30 days.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #5 (Strong Sell) for Citi Trends. Also, the stock has a VGM Score of C.
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