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Nordstrom Crashes on Q3 Earnings & Sales Miss, Cuts View

Shares of Nordstrom Inc.JWN plunged 20.9% during the after-hours trading session yesterday, after the company reported dismal third-quarter fiscal 2015 results, followed by a lowered outlook for the fiscal. Results were impacted by soft sales trends across all networks and merchandise categories.

Nordstrom's quarterly adjusted earnings of 57 cents per share came in way below the Zacks Consensus Estimate of 71 cents and tanked 21.9% from the prior-year quarter figure of 73 cents.

Nordstrom Inc. (JWN) - Quarterly EPS | FindTheCompany

Including 15 cents of transaction costs associated with the credit card portfolio sale to TD Bank, Nordstrom's earnings per share came in at 42 cents.

Total Revenue

Nordstrom's total revenue rose 6% to $3,328 million, but missed the Zacks Consensus Estimate of $3,371 million.

The company's net Retail sales increased 6.5% to $3,239 million, while its Credit Card revenues slumped 11% to $89 million.

Net sales at the company's full-line stores slipped 1.9%, while sales at Rack stores were up 8.4%. Coming to the company's online business, Nordstrom.com sales for the quarter jumped 11% and Nordstromrack.com/HauteLook net sales soared 39%, maintaining the trend of beating expectations. Additionally, off-price business net sales ascended 12% year over year.

Total company comparable store sales (comps) inched up 0.9% in the quarter. Further, the company registered a 0.3% rise in comps at Nordstrom full-line stores (which consist of full-line stores and the Nordstrom.com businesses), while comps at Nordstrom Rack reflected a 2.2% decline.

Apart from this, sales continued to receive significant contribution from Nordstrom's Rewards loyalty program, which represented about 38% of sales during the third quarter.

Operational Update

Nordstrom's gross profit margin contracted 163 basis points (bps) to 33.9%, mainly on account of greater markdowns, higher occupancy expenses and unfavorable mix at Nordstrom Rack.

Selling, general and administrative (SG&A) expenses, as a percentage of sales, escalated 68 bps to 30.8%, primarily due to expenses related to the Trunk Club acquisition and the Canadian venture, along with higher fulfillment expenses linked with the expansion of online footprint.

Nordstrom's operating income plunged 20.8% to $148 million from $205 million in the prior-year period, with the operating income margin contracting 220 bps to 4.6%.

Balance Sheet and Cash Flow

Nordstrom ended the quarter with cash and cash equivalents of $821 million, long-term debt, net of current liabilities, standing at $2,800 million, and total shareholders' equity of $1,408 million.

During the first three quarters of fiscal 2015, Nordstrom generated $1,745 million in cash from operating activities. Capital expenditures in the first nine months of fiscal 2015 were $857 million.

Other Developments & Shareholder-Friendly Moves

Nordstrom concluded the sale of its credit card portfolio to TD Bank for $2.2 billion, on Oct 1, 2015. The company plans to utilize $1.8 billion of the proceeds by deploying it to shareholders as part of its balanced capital allocation strategy. In this regard, the company paid special cash dividends of nearly $900 million (or $4.85 per share) and announced an incremental $1 billion share repurchase program.

This transaction is anticipated to have a negative impact of nearly 8 cents per share on the company's bottom line for fiscal 2015.

Further, during the third quarter, the company bought back nearly 3.5 million shares for about $250 million. Currently, Nordstrom has about $1,486 million remaining under its share repurchase authorization.

Store Update

On a year-to-date basis, the company opened 5 full-line stores and 27 new Rack stores, while relocating 1 full-line store in fiscal 2015. This brings the company's total store count to 323 from 293 at the end of third-quarter fiscal 2014.

Guidance

Nordstrom remains focused on the execution of its customer strategy via various growth initiatives, in order to enrich customer experience and boost results.

However, taking into account the disappointing third-quarter results and the expected impact from the credit card portfolio sale, this Zacks Rank #4 (Sell) company lowered its guidance for fiscal 2015.

The company now expects net sales to increase nearly 7.5-8.0% in the fiscal compared with 8.5-9.5% growth projected earlier. Comps are estimated to rise about 2.5-3.0% against 3.5-4.5% improvement expected previously.

Gross margin is anticipated to decline in a range of 50-60 bps, compared with the previous guidance of a -5 to +5 bps range. SG&A expenses, as a percentage of sales, are expected to grow 70-75 bps, up from the previous forecast of a 65-75 bps increase.

Consequently, the company envisions earnings per share in the range of $3.32-$3.42, compared with the previous guidance of $3.85-$3.95. Excluding the impact of the credit transaction and other one-time items, earnings per share are expected in the range of $3.40-$3.50, down from $3.70-$3.80 projected earlier.

Stocks to Consider

Better-ranked stocks in the same industry include American Eagle Outfitters, Inc. AEO , with a Zacks Rank #1 (Strong Buy), L Brands, Inc. LB and Genesco Inc. GCO , each with a Zacks Rank #2 (Buy).

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AMER EAGLE OUTF (AEO): Free Stock Analysis Report

NORDSTROM INC (JWN): Free Stock Analysis Report

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L BRANDS INC (LB): 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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