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JWN Tops 4Q, Posts Record '11 Sales - Analyst Blog

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Nordstrom Inc. ( JWN ) posted earnings growth of 6.7% to reach $1.11 a share in the fourth quarter of fiscal 2011 from $1.04 per share earned in the year-ago period. Earnings per share beat the Zacks Consensus Estimate by a penny. The strong quarterly performance was primarily driven by a double-digit growth in total revenue.

Quarterly Details

Nordstrom's same-store sales and top-line trends were also encouraging for the quarter. Total revenue grew 12% to $3,266 million from $2,916 million in the prior-year period, surpassing the Zacks Consensus Estimate of $3,257 million. Nordstrom's net sales (including full-line and direct businesses) increased 9.8% year over year.

Total sales at Nordstrom Rack increased $85 million, or 17.7% from the year-ago quarter. However, the company's credit card revenue declined 3% year over year to $97 million. Nordstrom now expects 2012 credit card revenue to increase in the range of $0.0 to $10.0 million.

Total same-store sales for the quarter grew 7.1%. Moreover, Nordstrom's same-store sales (including full-line and direct businesses) jumped 8.4%, driven by the robust performance in Designer, Handbags and Cosmetics categories. Besides, full-line same-store sales growth was backed by strong performances in the Midwest and the South regions. The company's direct channel experienced robust growth and contributed 35% to the quarterly revenue growth. Same-store sales at Nordstrom Rack inched up 2.2%.

Gross margin for the quarter increased 12 basis points (bps) from the prior-year quarter, primarily due to leveraged buying and occupancy expenses. Conversely, retail selling as well as general and administrative expenses increased 17.4% to $818 million in the quarter, primarily due to increased operating expenses as well as higher volume of sales and HauteLook operating expenses. Credit selling, general and administrative expenses surged 5.5% year over year to $58 million.

Consequently, Nordstrom's operating income posted an increase of $11 million year over year to $417 million, while operating margin contracted 110 bps to 12.8%.

Fiscal 2011, a synopsis

For full fiscal 2011, Nordstrom's earnings grew 14.2% year over year to $3.14 per share, beating the Zacks Consensus Estimate also by a penny. During fiscal 2011, the company achieved its all time high net sales of $10,497 million, up 12.7% from the previous fiscal. This represented Nordstrom's two consecutive years of nearly 13% growth in net sales.

Balance Sheet and Cash Flow

Nordstrom ended the fiscal with cash and cash equivalents of $1,877 million compared with $1,506 million at the end of fiscal 2010. Long-term debt (including current portion) at the end of the fiscal stood at $3,141 million. During fiscal 2011, Nordstrom generated $1,177 million and $432 million of cash from operations and free cash flow, respectively. The company utilized $511 million for capital expenditure and $197 million for dividend payment.

Guidance

The company expects fiscal 2012 earnings per share in the range of $3.30 to $3.45 on the back of total same-store sales growth of 4% - 6%. However, gross margin is anticipated to decrease between 5 and 35 basis points. Further, management is planning to make capital investments in the range of $480 million to $520 million, majorly in enhancing e-commerce capabilities.

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 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.

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 #3 Rank, which translates into a short-term 'Hold' rating. Our long-term recommendation on the stock remains 'Neutral'.

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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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