Shares of Nordstrom
Inc. (JWN) jumped 10.9% in yesterday’s after-hour trading
session following the company's better-than-expected first-quarter
fiscal 2014 results.
The upscale department store
operator’s first quarter earnings of 72 cents per share not only
came ahead of its own guidance range of 60–70 cents, but also
surpassed the Zacks Consensus Estimate of 67 cents. We believe, the
company’s customer strategy continued to bear fruits, reflecting
growth across channels along with efficient inventory and expense
management.
However, on a year over year basis,
the company’s quarterly earnings came in a penny below the year-ago
comparable quarter’s earnings of 73 cents per share. The benefit of
higher sales and reduced number of outstanding shares were more
than offset by increased markdowns due to highly promotional
environment and elevated investment towards technological upgrades
and development of infrastructure in Canada.
Nordstrom, Inc - Quarterly Earnings
Per Share | FindTheBest
Total Revenue
Nordstrom’s total revenue of $2,931
million registered a 6.6% year over year growth, higher than its
own guidance range of 3.5%–5.5% growth as well as the Zacks
Consensus Estimate of $2,877 million. The year over year increase
in revenue was primarily led by strong performance at its stores
open for at least one year along with new store openings as well as
robust online retail performance.
The company’s Net Retail sales
increased approximately 6.8% to $2,837 million while its Credit
Card revenues grew nearly 2.2% to $94 million. Notably, sales
trends in the quarter have improved when compared with the trends
witnessed through fiscal 2013.
Total comparable store sales
(comps) improved 3.9% in the quarter. The company registered a 1.9%
decline at its full-line stores, while comps at Nordstrom Rack
increased 6.4%. Moreover, the company reported comps gain of 33% in
its Direct businesses mainly driven by ongoing technological
investment towards expanding online presence and enhancing
merchandise offerings. Nordstrom Rack net sales rose 20% benefiting
from about 27 new Rack stores, open since the beginning of first
quarter of fiscal 2013.
Nordstrom's comps (including
full-line and direct businesses) rose 3.3% in the quarter, as
against a 3.1% rise in the year-ago comparable period.
Outperforming categories in the quarter included Women’s Shoes,
Accessories, and Cosmetics.
Q1 Operational
Update
Nordstrom’s retail segment gross
profit in the quarter improved 3.2% year over year to $1,015
million. However, due to increased markdowns resulting from highly
promotional environment during the quarter and higher occupancy
costs related to the expansion of Rack Stores, Nordstrom's gross
profit margin in the retail segment contracted 124 basis points
(bps) to 35.8%.
Total selling, general and
administrative (SG&A) expenses increased 5.4% to $844 million
in the quarter. However, as a percentage of sales, it decreased 40
bps primarily benefiting from higher sales and lower variable
expenses.
Nordstrom's operating income
decreased nearly 3.6% to $265 million compared with $275 million in
the prior-year period. Moreover, operating margin contracted 100
bps to 9.3% primarily due to lower gross margin offset by lesser
SG&A expenses as a percentage of sales.
Balance Sheet and Cash
Flow
Nordstrom ended the quarter with
cash and cash equivalents of $1015 million lower than the prior
year figure of $1,190 million. Long-term debt net of current
liabilities was $3,110 million versus $3,119 million in the
prior-year period. During the quarter, Nordstrom generated $217
million in cash from operations.
Capital expenditures for the
quarter were $174 million. During the quarter, the company bought
back nearly 3.2 million shares for about $192 million. Currently,
Nordstrom has about $478 million worth of shares remaining under
its existing share repurchase authorization.
Store
Update
During first quarter, the company
opened 10 new Rack stores, expanding the total company store count
to 270 as against 260 and 245 at the end of fourth quarter and
first quarter, respectively, of fiscal 2013.
Looking into fiscal 2014, Nordstrom
plans to further expand its store base by opening 20 new stores in
the remaining period of fiscal 2014, which include 3 full-line
stores and 17 Rack stores.
Guidance
Despite improved top and
bottom-line performances in the first quarter, the company kept its
fiscal 2014 outlook unchanged as it believes the fiscal will remain
challenging due to a highly promotional environment.
Nordstrom expects total sales to
increase by 5.5%—7.5% and comps to rise in the range of 2%—4% in
fiscal 2014. Further, gross margin is expected to contract 30–50
bps year over year. Management projects SG&A expenses, as a
percentage of sales, to rise 0 to 20 bps. Further, the company
expects interest expenses to decline $25 million in fiscal 2014.
Tax rate is expected to be about 39.0%.
Nordstrom expects fiscal 2014
earnings to come in the range of $3.75–$3.90 per share, assuming
shares outstanding of nearly 194 million. Moreover, the company
projects loss before interest and taxes of $35 million for Canada
in fiscal 2014 compared with a loss of $14 million incurred in
fiscal 2013.
Other Stocks to
Consider
Nordstrom currently carries a Zacks
Rank #4 (Sell). Better-ranked stocks in the apparel and shoe space
include Citi Trends, Inc. (CTRN), American
Apparel, Inc. (APP) and Foot Locker, Inc.
(FL). While Citi Trends sports a Zacks Rank #1 (Strong Buy),
American Apparel and Foot Locker hold a Zacks Rank #2 (Buy).
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