Earnings Scorecard: Nordstrom Inc. - Analyst Blog

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.


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.

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NORDSTROM INC ( JWN ): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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