Nordstrom, Inc. JWN reported dismal first-quarter fiscal 2020 results, wherein sales and earnings declined year over year. Despite a solid start to the first quarter, the onset of coronavirus led to temporary store closures starting Mar 17. This had a material impact on the company’s quarterly results. Hence, the company earlier refrained from providing any guidance for fiscal 2020.
In the past three months, this Zacks Rank #4 (Sell) stock has plunged 51.7% compared with the industry’s decline of 25.8%.
However, it is making efforts to strengthen the financial position to overcome the COVID-19 hurdle by reducing inventory by more than 25% year over year along with lowering cash burn by more than 40% from March to April.
Nordstrom posted adjusted loss of $2.23 per share against earnings of $0.23 in the year-ago quarter. The figure also came wider than the Zacks Consensus Estimate of a loss of $1.21 per share.
Total revenues declined 38.5% to $2,119 million, while net sales fell 39.5% to $2,026 million. The Zacks Consensus Estimate for sales was pegged at $2,251 million. Temporary store closures for nearly half of the reported quarter stemming from the ongoing pandemic hurt sales to a large extent. Apart from these, the company’s Credit Card net revenues edged down 1.1% to $93 million.
Nordstrom’s full-price net sales (including the U.S. full-line stores, Nordstrom.com, the Canadian operation, Trunk Club, Jeffrey and Nordstrom Local) declined 36% to $1,357 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) slumped 45% to $669 million. The decline in full-price and off-price sales were a result of softness in the average selling price, which was only partly offset by gains from sturdy online traffic and conversion trends.
Meanwhile, digital sales advanced 5% in the reported quarter. This represented 54% of the company’s business, up from 31% in the year-ago quarter. Robust online demand was somewhat offset by the unfavorable timing of unshipped orders and expected returns.
Nordstrom's gross profit margin contracted significantly to 11% from 34% in the prior-year quarter. This downside was due to higher markdowns in a bid to clear inventory and soft sales volume. Ending inventory declined 26% from last year due to higher promotions and marketing activities to lower inventory.
Selling, general and administrative (SG&A) expenses, as a percentage of sales, grew significantly to 55% from 34% in the year-ago quarter. Excluding charges of $250 million related to COVID-19, expenses fell nearly 25% during the quarter under review stemming from lower sales volume and a reduction in overhead costs owing to store closures.
Further, loss before interest and taxes for the reported quarter came in at $813 million against earnings before interest and taxes (EBIT) of $77 million due to a decline in sales volume stemming from temporary store closures and charges of $280 million related to COVID-19.
The company earlier closed all Nordstrom full-line, Nordstrom Rack, Trunk Club clubhouses and Jeffrey stores starting Mar 17. However, it has now started reopening few stores from early May, with roughly 40% of its store fleet open. The reopened stores are also offering contactless curbside pickup facility. Going ahead, Nordstrom intends to reopen the remaining stores by the end of June.
Apart from these, the company recently noted that it has decided to permanently close three Jeffrey specialty stores along with the 16 full-line stores announced earlier.
Nordstrom, Inc. Price, Consensus and EPS Surprise
Nordstrom, Inc. price-consensus-eps-surprise-chart | Nordstrom, Inc. Quote
Nordstrom ended fiscal 2019 with cash and cash equivalents of $1,355 million, long-term debt (net of current liabilities) of $3,264 million and total shareholders’ equity of $397 million.
The company used $778 million of net cash from operating activities and spent $131 million as capital expenditures in the quarter under review. At the end of the quarter, it had free cash flow of $826 million.
Moreover, management suspended its share repurchase program and dividend payments in the wake of the COVID-19 crisis. Also, the company withdrew $800 million from its revolving credit facility. Further, it targets a reduction in operating expenses, capital expenditures and working capital to the tune of roughly $500 million, which will be incremental to its initial savings goal of $200-$250 million for fiscal 2020.
3 Stocks to Consider
The Kroger Co. KR has an impressive long-term earnings growth rate of 4.9% and a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Office Depot ODP, also a Zacks Rank #2 stock, has an impressive long-term earnings growth rate of 6.8%.
Lowes Companies LOW, which presently carries a Zacks Rank #2, has an expected long-term earnings growth rate of 15.2%.
The Hottest Tech Mega-Trend of All
Last year, it generated $24 billion in global revenues. By 2020, it's predicted to blast through the roof to $77.6 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
See Zacks' 3 Best Stocks to Play This Trend >>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Lowes Companies, Inc. (LOW) : Free Stock Analysis Report
Nordstrom, Inc. (JWN) : Free Stock Analysis Report
Office Depot, Inc. (ODP) : Free Stock Analysis Report
The Kroger Co. (KR) : Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research