Despite reporting solid top-line
growth, the upscale department store operator Nordstrom
Inc.’s (JWN) first-quarter 2012 earnings of 70 cents per
share missed the Zacks Consensus Estimate of 75 cents. However,
quarterly earnings were higher than the prior-year period earnings
of 65 cents per share.
Quarter in
detail
Nordstrom’s same-store sales and
top-line trends were encouraging for the quarter. Total revenue
grew 13.2% to $2,629 million from $2,323 million in the prior-year
period and surpassed the Zacks Consensus Estimate of $2,591
million. The year-over-year top line growth was primarily driven by
robust performance of the company’s e-commerce business along with
the customer loyalty program, including Fashion Reward points on
lower spending.
Nordstrom’s net sales (including
full-line and direct businesses) increased $191 million or 10.8%
year over year. Total sales at Nordstrom Rack increased $91
million, or 19.6% from the year-ago quarter. However, the company’s
credit card revenue remained flat year over year at $94 million.
Nordstrom now expects 2012 credit card revenue to increase in the
range of $0.0 to $10.0 million.
Nordstrom’s e-commerce retail
revenue grew a whopping 44.2% from the prior-year period level. In
September 2011, the company took several steps to boost its
web-based retail revenue, including free shipping on online
purchases and free return shipping too.
Total same-store sales for the
quarter grew 8.5%. Moreover, Nordstrom’s same-store sales
(including full-line and direct businesses) jumped 9.3%, driven by
the robust performance in Designer, Handbags, Women’s and Men’s
shoes categories. Besides, full-line same-store sales increased
5.6% on the back of strong performances in the Midwest and the
South regions. Same-store sales at Nordstrom Rack increased
6.8%.
However, due to free shipping on
online purchases and increased expenses related to the Fashion
Rewards program, Nordstrom’s gross profit, as a percentage of
sales, contracted 31 basis points (bps).
Further, retail selling as well as
general and administrative expenses increased 18% to $721 million
in the quarter, primarily due to increased operating expenses as
well as higher volume of sales and various customer loyalty program
expenses. However, credit selling, general and administrative
expenses declined 20% year over year to $44 million.
Consequently, Nordstrom’s operating
income stood at $280 million compared with $272 million reported in
the prior-year period, while operating margin contracted 100 bps to
10.7%.
Balance Sheet and Cash
Flow
Nordstrom ended the quarter with
cash and cash equivalents of $1,647 million compared with $1,433
million at the end of first quarter 2011. Long-term debt (including
current portion) at the end of the quarter stood at $3,143 million.
During first-quarter 2012, Nordstrom generated $159 million and $70
million in cash from operations and free cash flow, respectively.
The company incurred $98 million in capital expenditure, spent $57
million to repurchase shares and $56 million for dividend
payment.
Guidance
The company maintains its fiscal
2012 earnings guidance at $3.30-$3.45 per share, based on total
same-store sales growth of 4% - 6%. However, gross margin is
anticipated to decrease 5 to 35 basis points. Further, management
is planning to incur $275 million to $340 million in retail
selling, general and administrative expenses, majorly in enhancing
e-commerce capabilities. The current Zacks Consensus Estimate is
pegged at $3.41 per share.
Our
Take
We believe that the upscale
department store operator will continue to report better financial
results in the near future. The company will continue to attract
more shoppers with its different mediums of sales channel as well
as offers. Moreover, the recent acquisition of online private sale
leader HauteLook Inc. will facilitate Nordstrom to further increase
its direct business capabilities, implement an enterprise-wide
inventory management system, and sell directly to online customers
while enhancing customer services, which in turn, will boost its
profitability.
Moreover, in a move to supplement
its e-commerce division, Nordstrom has entered into a partnership
with the largest online clothing brand Bonobos Inc. Launched in
2007, Bonobos sells best-selling washed Chinos and colorful spring
options, exclusively online. Following the announcement,
Nordstrom stores will now feature the Bonobos assortments, while it
will also sell Bonobos merchandise online through
Nordstrom.com.
Based in Seattle, Washington,
Nordstrom Inc. is a leading fashion specialty retailer in the U.S.,
offering high quality apparel, shoes, cosmetics and accessories for
men, women and kids. The company offers both branded and private
label merchandise, as well as a private label card, two Nordstrom
VISA credit cards and debit cards for Nordstrom purchases.
However, Nordstrom operates in a
highly fragmented specialty retail sector and faces intense
competition from other well-established players, such as
The Gap Inc. (GPS) and Limited Brands
Inc. (LTD). The company primarily competes on the basis of
fashion, quality and service.
Nordstrom's shares maintain a Zacks
#2 Rank, which translates into a short-term 'Buy' rating. Our
long-term recommendation on the stock remains 'Neutral'.
GAP INC (GPS): Free Stock Analysis Report
NORDSTROM INC (JWN): Free Stock Analysis Report
LIMITED BRANDS (LTD): Free Stock Analysis Report
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