Nordstrom Inc.
(
JWN
) posted strong results for the third quarter of fiscal 2011, with
earnings growth of 11.3% year over year. Earnings were driven
primarily by a double-digit growth in total revenue. Earnings per
share beat the Zacks Consensus Estimate by a penny.
Third Quarter Highlights
Nordstrom's same-store sales and top-line trends were also
encouraging. Total revenue grew 13.6% to $2.5 billion from $2.2
billion in the prior-year period. Moreover, total revenue surpassed
the Zacks Consensus Estimate of $2.4 billion. Nordstrom's net sales
(including full-line and direct businesses) increased 14.2% to $2.3
million from $2.1 million in the year-ago quarter.
Total sales at Nordstrom Rack increased $101.0 million, or 23.6%
from the year-ago quarter. However, the company's credit card
revenue remained stagnant at $95.0 million. Nordstrom now expects
2011 credit card revenue to decline in the range of $5.0 to $10.0
million.
Total same-store sales for the quarter grew 7.9%. Moreover,
Nordstrom's same-store sales (including full-line and direct
businesses) jumped 9.8%, driven by the Designer, Handbags and
Dresses categories. Besides, full-line same-store sales growth was
led by strong performances in the Midwest and the South. Same-store
sales at Nordstrom Rack increased 6.8%.
Gross margin for the quarter increased 40 basis points (bps) to
36.6% from 36.2% in the prior-year quarter. The company now expects
2011 gross margin to increase in the range of 45 to 55 basis
points, up from its previous guidance range of 30 to 50 basis
points forecasted earlier.
Consequently, Nordstrom's operating income posted an increase of
$19.0 million year over year to $240.0 million, while operating
margin (as a percentage of total revenue) contracted 50 bps to
9.7%.
Agreement of Analysts
None of the 19 analysts covering the stock revised their fourth
quarter estimates (either upward or downward) in the last 7 days,
although there was one upward revision in the last 30 days. There
were no revisions to first quarter estimates in the past 7 days;
however, there was one upward revision in the last 30 days.
Therefore, analysts appear to be in agreement about Nordstrom
meeting their expectations over the next two quarters.
For fiscal 2011 also, there was no revision in the estimates
(either upward or downward) in the last 7 days. But in the last 30
days there were three upward revisions and nine downward revisions.
Similarly, for fiscal 2012, there was no revision in the estimates
(either upward or downward) in the last 7 days.
However, there were 7 upward revisions and 8 downward revisions
in the last 30 days. The wayward revisions seem to indicate that
there is a considerable amount of disagreement regarding the
company's performance this year and the next.
The overall sentiment about the shares remains positive given
that most of the analysts have an outperform rating on the stock.
Analysts continue to believe that Nordstrom has superior execution
compared to other department stores and its retail stores stock the
latest fashion trends. The company also has a good inventory
control mechanism, with its inventory per square foot is usually in
line with its sales per square foot, indicating good estimation of
demand and customer satisfaction.
However, the company intends to increase its marketing spend by
approximately $15 million for the fourth quarter, taking the total
for the year up by $360 to $370 million higher than in 2010. Also,
given the economic uncertainty, especially the unemployment trends,
analysts feel that consumer spending, especially for high-end
products may suffer, ultimately leading to a mismatch between
investments and returns.
Magnitude of Estimate Revisions
The Zacks Consensus Estimate for the upcoming fourth quarter and
for the first quarter of 2012 remained stagnant in the last 7 days
at $1.07 and 74 cents, respectively.
Again, the Zacks Consensus Estimate for fiscal 2011and 2012
remained unchanged in the last 7 days, at $3.10 and $3.58,
respectively.
Earnings Surprises
The third quarter earnings surprise for Nordstrom was positive 1
cent or 1.7%. The surprise percentage over the last four quarters
is indicative of a positive trend. However, going by the fact that
estimates have been lowered recently, we expect the company to
report lower- than-expected results for the fourth quarter, but in
line results for fiscal 2011.
Summary
Nordstrom has a strong line-up of globally known brands catering
primarily to the higher-end segment, which bolsters its
well-established position in the market.However, intense
competition from other established players and exposure to seasonal
fluctuations may undermine the company's future growth prospects.
Its primary competitors include
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 #3 Rank, which translates
into a short-term 'Hold' rating.
Based in Seattle, Washington, Nordstrom 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.
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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