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Nordstrom (JWN) Down on Q1 Earnings Miss, FY19 View Cut

Zacks Equity Research

Nordstrom, Inc. JWN 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.

Markedly, shares of this Seattle, WA-based company fell 9.3% in the after-market trading session on May 21. In the past three months, the stock has lost 15.5% compared with the industry’s 13% decline.



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.

Nordstrom, Inc. Price, Consensus and EPS Surprise

Nordstrom, Inc. Price, Consensus and EPS Surprise

Nordstrom, Inc. price-consensus-eps-surprise-chart | Nordstrom, Inc. Quote

Further, this Zacks Rank #3 (Hold) 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. The Zacks Consensus Estimate for the fiscal year is pegged at $3.72, which is likely to witness downward revisions in the coming days.

3 Better-Ranked Retail Stocks

The Buckle, Inc. BKE delivered average positive earnings surprise of 4.2% in the trailing four quarters. Currently, the stock sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Children's Place, Inc. PLCE, also a Zacks Rank #1 stock, has an expected long-term earnings growth rate of 8%.

Abercrombie & Fitch Co. ANF has a long-term earnings growth rate of 15.3% and a Zacks Rank #2 (Buy).

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