Despite reporting solid top-line growth, the upscale department
) 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
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
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
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.
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.
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.
Limited Brands Inc.
). The company primarily competes on the basis of fashion, quality
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'.
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