It has been about a month since the last earnings report for Nordstrom (NYSE:JWN). Shares have lost about 6.1% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Nordstrom due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Nordstrom's Q4 Earnings Beat Estimates, Revenues Miss
Nordstrom reported mixed results for fourth-quarter fiscal 2018. While the company’s revenues missed the Zacks Consensus Estimate after beating in three consecutive quarters, earnings surpassed the same marking four straight quarters of beat. The bottom line also increased on a year-over-year basis.
Q4 Highlights
In the quarter under review, Nordstrom’s earnings per share of $1.48 outpaced the Zacks Consensus Estimate of $1.42 and increased 23.3% year over year. This year-over-year improvement was driven by lower tax expenses related to corporate tax reform.
Total quarterly revenues decreased 4.6% to $4,484 million and also missed the Zacks Consensus Estimate of $4,630 million. While the company’s net Retail sales decreased 4.7% to $4,383 million, Credit Card net revenues were almost in line at $101 million.
Excluding sales of around $220 million in the 53rd week of 2017, the top line increased 0.1% on a like-for-like basis in fourth-quarter fiscal 2018. Moreover, total comparable sales (comps) in the reported quarter improved 0.1%.
Nordstrom is focused on attaining long-term targets that support strategic efforts to drive shareholder returns. This includes improving returns and profitability, gains in market share and disciplined capital allocation.
Further, the company’s customer strategy that focuses on three strategic factors — leveraging its brand’s strength, providing excellence services and offering compelling products — is encouraging. In 2018, Nordstrom saw progress on its digital strategy as digital sales improved 16%, representing about 30% of sales growth. Further, its generational investments contributed roughly $2 billion to sales growth and surpassed the company’s bottom-line expectation. Moreover, the company expects generational investments to contribute approximately $2.2 billion to sales in fiscal 2019.
Nordstrom’s full-price net sales (including the U.S. full-line stores, Nordstrom.com, the Canadian operation, Trunk Club, Jeffrey and Nordstrom Local) decreased 8.8% to $2,985 million in the fiscal fourth quarter, with comps down 1.6%. The company’s off-price net sales (including Nordstrom U.S. Rack stores, Nordstromrack.com/HauteLook and Last Chance clearance stores) declined 2.7% to $1,398 million, while comps increased 4%.
Operational Update
Nordstrom's gross profit margin contracted 33 basis points (bps) to 35.1% mainly on account of increased markdowns resulting from soft sale trends in Full-Price stores and increased promotions.
Selling, general and administrative (SG&A) expenses, as a percentage of sales, decreased 23 bps to 29.8% primarily owing to better expenses management.
Store Update
As of Feb 2, 2019, Nordstrom operated 379 stores across 40 states. These include 121 full-line stores in the United States, Canada and Puerto Rico, 244 Nordstrom Rack outlets, three Jeffrey boutiques, two clearance stores, six Trunk Club clubhouses as well as three Nordstrom Local service concepts.
Financials
Nordstrom ended fiscal 2018 with cash and cash equivalents of $957 million, long-term debt (net of current liabilities) of $2,677 million and total shareholders’ equity of $873 million.
Nordstrom generated $1,296 million of net cash by operating activities and spent $654 million as capital expenditures as of Feb 2, 2018. In fiscal 2018, it generated free cash flow of $642 million.
Moreover, the company bought back 14.3 million shares for $702 million in fiscal 2018. Following this, nearly $893 million remained under the current buyback authorization.
On Feb 27, it announced a quarterly cash dividend of 37 cents per share, which is payable Mar 26, 2019, to its shareholders of record as of Mar 11.
Guidance
Management issued an encouraging guidance for fiscal 2019. The company estimates net sales growth of 1-2%, with mid to high single-digit growth for credit card revenues.
Further, the company expects EBIT of $915-$970 million, while EBIT margin is anticipated to be 5.9-6.1%. Consequently, the company envisions adjusted earnings per share of $3.65-$3.95 for fiscal 2019.
How Have Estimates Been Moving Since Then?
Fresh estimates followed a downward path over the past two months. The consensus estimate has shifted -14.53% due to these changes.
VGM Scores
At this time, Nordstrom has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Nordstrom has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
Nordstrom, Inc. (JWN): Free Stock Analysis Report
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