Are Nordstrom's Initiatives Enough for a Revival in Fiscal 1Q16?
Earnings dragged by growth investments
Nordstrom (JWN) has been aggressively investing in the expansion of its business. This includes its off-price stores, growth in Canada, and the Trunk Club acquisition. In 4Q15, which ended January 30, 2016, the company’s adjusted EPS (earnings per share) declined by 11.4%. In fiscal 2015, Nordstrom’s adjusted EPS declined by 10.8% to $3.32. The company considers fiscal 2015 to be its peak investment year. It’s making efforts to reduce its expenses and capital spending in fiscal 2016.
Nordstrom’s department store peers Macy’s (M), Kohl’s (KSS), and Dillard’s (DDS) reported declines of 14.3%, 5.4%, and 14%, respectively, in fiscal 2015 adjusted EPS.
Expectations from 1Q16
Nordstrom missed analysts’ earnings expectations in three of the four quarters of fiscal 2015. For 1Q16, which ended April 30, 2016, analysts expect Nordstrom to deliver an adjusted EPS of $0.46. That’s a 30.3% decline from 1Q15. Nordstrom is scheduled to announce its 1Q16 results on May 12, 2016.
For fiscal 2016, analysts currently expect Nordstrom’s adjusted EPS to decline by 3% to $3.22. In the guidance issued in February 2016, Nordstrom stated that it expects fiscal 2016 diluted EPS to be $3.10–$3.35. Nordstrom accounts for 0.2% of the iShares Global Consumer Discretionary ETF (RXI).
Why 1Q16 earnings are expected to decline
Nordstrom’s earnings guidance issued in February 2016 reflects the impact of a continued promotional environment. The company stated that it expects EPS to decline by about 30% in the first half of fiscal 2016. This decline is anticipated for the following reasons:
- impact of the sale of credit receivables in October 2015
- impact of growth initiatives, including the opening of the company’s third fulfillment center in August 2015 – Costs related to growth initiatives also include new store pre-opening costs.
- shift of the company’s anniversary sale event from 2Q15 to 2Q16 and 3Q16
The first two reasons are likely to bring down Nordstrom’s 1Q16 results.
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