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Nordstrom (JWN) Q3 Earnings Beat Estimates, Revenue Miss

Nordstrom, Inc. JWN posted third-quarter fiscal 2023 results, wherein earnings surpassed the Zacks Consensus Estimate, while revenues lagged the same. Despite continued uncertainty and muted consumer spend, the company highlighted that favorable inventory across both banners makes it well-placed for the upcoming holiday season.

Nordstrom posted adjusted earnings of 25 cents per share, up 25% from the prior-year quarter’s reported figure of 20 cents. Earnings per share also surpassed the Zacks Consensus Estimate of 13 cents.

Total revenues of $3,320 million declined 6.4% year over year and missed the Zacks Consensus Estimate of $3,392 million. Dismal revenues resulted from a 270-basis-point (bps) adverse impact of the wind-down of Canada operations and a 7.1% decline in gross merchandise value ("GMV"). Sales were also hurt by declines across the Nordstrom and Nordstrom Rack
banners.

 

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

 

Shares of JWN have lost 14.2% in the past three months against the industry’s growth of 9%.

Quarterly Highlights

Net sales fell 6.8% year over year to $3,200 million and lagged our estimate of $3,296.5 million. Credit Card net revenues grew 6.2% year over year to $120 million and beat our estimate of $111.5 million.

In third-quarter fiscal 2023, net sales for the Nordstrom banner decreased 9.4% from the year-ago quarter to $2,051 million and missed our estimate of $2,151 million. GMV declined 9.8% year over year for the Nordstrom banner in the fiscal third quarter. The Nordstrom banner’s net sales included a negative impact of 410 bps related to the wind-down of the Canada operations. The favorable timing shift of the Anniversary Sale hurt Nordstrom banner’s sales by 300 basis points.

Sales at the Nordstrom Rack banner declined 1.8% year over year to $1,149 million but beat our estimate of $1,145.2 million. The elimination of store fulfillment for Nordstrom Rack digital orders from the third quarter of fiscal 2022 hurt third-quarter fiscal 2023 Nordstrom Rack banner net sales by 100 bps.

Digital sales plunged 11.3% year over year in the fiscal third quarter due to the elimination of store fulfillment for Nordstrom Rack digital orders in third-quarter fiscal 2022. These actions hurt fiscal third-quarter digital sales by 100 bps. The favorable timing shift of the Anniversary Sale hurt digital sales by 400 basis points. In the fiscal third quarter, digital sales contributed 34% to net sales.

Nordstrom's gross profit margin expanded 180 bps year over year to 35% for the reported quarter mainly due to lower markdowns, higher inventory productivity, and reduced buying and occupancy costs, partly offset by deleverage on lower sales. The metric also met our estimate.

SG&A expenses, as a percentage of sales, contracted 5 bps year over year to 36.3% due to deleveraging from lower sales and higher labor costs, partly offset by improvements in variable costs stemming from supply-chain efficiency initiatives.

Adjusted earnings before interest and taxes (EBIT) of $77 million rose 5.5% year over year in the fiscal third quarter and beat our estimate of $60.7 million. The adjusted EBIT margin expanded 30 bps in the fiscal third quarter to 2.4%.

Other Financials

Nordstrom ended third-quarter fiscal 2023 with available liquidity of $1.2 billion, including $375 million of cash and cash equivalents, and $800 million available on its revolving credit facility. The company had a long-term debt (net of current liabilities) of $2,611 million and total shareholders’ equity of $729 million as of Oct 28, 2023.

As of Oct 28, 2023, JWN’s net cash provided for operating activities was $107 million. The company spent $375 million on capital expenditure for the aforementioned period. Nordstrom recently approved a dividend of 19 cents, payable Dec 13, to its shareholders of record as of Nov 28.

Nordstrom, Inc. Price, Consensus and EPS Surprise

 

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

Outlook

This Zacks Rank #3 (Hold) company anticipates total revenues to decline 4-6% year over year in fiscal 2023. Meanwhile, we expect revenues to decline 5.7%. 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 1.8-2,1%, up from the earlier stated 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 3.8-4.1% compared with the previously communicated view 3.7-4.2% of sales.

The company predicts an income tax rate of 21% for fiscal 2023, including an 800-bps impact of the one-time charges for the Canada business wind-down.

Adjusted earnings are envisioned to be $1.90-$2.10 per share compared with the prior stated $1.80-$2.20, excluding the charges related to the Canada business wind-down. Meanwhile, we expect the bottom line to be $2.01. Earnings per share, including the wind-down-related charges, are expected to be 74-94 cents compared with the earlier mentioned 60 cents to $1.00. We forecast the metric to be 79 cents. The company’s earnings guidance excludes any potential share repurchase.

Key Picks

Some better-ranked stocks are American Eagle Outfitters AEO, Ross Stores ROST and Walmart WMT.

American Eagle Outfitters is a specialty retailer of casual apparel, accessories and footwear. It sports a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for American Eagle Outfitters’ current fiscal-year earnings and sales indicates growth of 36.1% and 2.4%, respectively, from the previous year’s reported figures. AEO has a trailing four-quarter average earnings surprise of 43.2%.

Ross Stores, which operates off-price retail apparel and home fashion stores, currently carries a Zacks Rank #2 (Buy).

The Zacks Consensus Estimate for Ross Stores’ current financial-year sales and earnings indicates growth of 7.1% and 19.4%, respectively, from the year-ago reported numbers. ROST has a trailing four-quarter earnings surprise of 11.4%, on average.

Walmart, which operates a chain of hypermarkets, discount department stores and grocery stores, currently carries a Zacks Rank #2. The expected EPS growth rate for three to five years is 5.5%.

The Zacks Consensus Estimate for Walmart’s current financial-year sales implies an improvement of 4.2% from the year-ago period’s actual. WMT has a trailing four-quarter earnings surprise of 12%, on average.

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