Nordstrom (JWN) Down 59.6% Since Last Earnings Report: Can It Rebound?
A month has gone by since the last earnings report for Nordstrom (JWN). Shares have lost about 59.6% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Nordstrom due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Nordstrom Q4 Earnings & Sales Lag Estimates
Nordstrom reported dismal fourth-quarter fiscal 2019 results, wherein sales and earnings missed the Zacks Consensus Estimate. Notably, the company’s bottom line missed estimates after surpassing the consensus mark in the last two quarters. Also, earnings declined on a year-over-year basis. Management provided guidance for fiscal 2020.
Nordstrom’s earnings of $1.42 per share missed the Zacks Consensus Estimate of $1.48 and declined 4.1% on a year-over-year basis. This downside was due to increase in SG&A expenses and higher interest expenses.
Total revenues rose 1.3% to $4,538 million but missed the Zacks Consensus Estimate of $4,568 million. The company witnessed improved top-line trends in its full-price and off-price businesses, driven by gains from loyalty program, digital channel and merchandise assortment. The company’s net Retail sales grew 1.3% to $4,439 million, while Credit Card net revenues declined 2% to $99 million.
Furthermore, Nordstrom’s full-price net sales (including the U.S. full-line stores, Nordstrom.com, the Canadian operation, Trunk Club, Jeffrey and Nordstrom Local) increased 1% to $3,015 million in the fiscal fourth quarter. The company’s off-price net sales (including Nordstrom U.S. Rack stores, Nordstromrack.com/HauteLook and Last Chance clearance stores) grew 1.8% to $1,424 million.
Meanwhile, digital sales advanced 9% in the reported quarter. This represents 35% of the company’s business, up 200 basis points (bps) year over year. The company benefited from online order pickup, which contributed more than half of digital sales growth in full-price stores.
Nordstrom also continued to expand its loyalty program in the fiscal fourth quarter, as the Nordy Club had about 13 million active customers, contributing about two-thirds of its sales in 2019.
Nordstrom's gross profit margin contracted 9 bps to 35%. This downside was due to higher costs from expansion of the loyalty program and planned occupancy costs related to the NYC flagship store, partly offset by improved merchandise margins. Ending inventory declined 2.9% from last year, marking four repeated quarters of sales growing faster than inventory.
Selling, general and administrative (SG&A) expenses, as a percentage of sales, grew 70 bps to 30.5%. Excluding integration charges, expenses remained flat due to realized expense savings of about $55 million from ongoing productivity initiatives.
Further, earnings before interest and taxes (EBIT), as a percentage of net sales contracted 90 bps to 6.7%. Excluding integration charges of $32 million, EBIT margin declined slightly compared to prior year.
As of Feb 1, 2020, Nordstrom operated 380 stores across 40 states. These include 116 full-line stores in the United States, Canada and Puerto Rico, 248 Nordstrom Rack outlets, three Jeffrey boutiques, two clearance stores, six Trunk Club clubhouses as well as five Nordstrom Local service concepts.
Nordstrom ended fiscal 2019 with cash and cash equivalents of $853 million, long-term debt (net of current liabilities) of $2,676 million and total shareholders’ equity of $979 million.
Nordstrom generated $1,236 million of net cash from operating activities and spent $935 million as capital expenditures in fiscal 2019. At the end of fiscal 2019, it had free cash flow of $309 million.
Moreover, the company bought back 4.1 million shares for $186 million in fiscal 2019. It had authorization worth of nearly $707 million remaining to be repurchased under the current program. Additionally, it paid out cash dividends worth $229 million in the same time frame. Moreover, it declared a quarterly cash dividend of 37 cents per share. This will be payable on Mar 25, 2020, to its shareholders of record as on Mar 10.
Nordstrom’s market strategy leverages physical and digital assets to offer customers a greater selection of merchandise available next day and more convenient access to services. In 2019, the company enhanced its strategy to five top markets — New York, Los Angeles, Chicago, Dallas and San Francisco. This resulted in outsized customer engagement and a lift in sales trends of 80 basis points relative to other markets in the fiscal fourth quarter.
Further, the company plans to expand its market strategy through several key initiatives, which include expanding to five additional markets. Also, it plans to launch e-commerce in Canada to enable a seamless shopping experience across stores and online. Moreover, it has been receiving strong customer response for its NYC flagship store.
Management provided guidance for fiscal 2020, which does not include the impacts of coronavirus outbreak. Nordstrom projects net sales to increase in the range of 1.5-2.5%. Credit card revenues, net, are expected to grow in mid single digit.
Further, the company expects EBIT of $815-$855 million, with EBIT margin of 5.3-5.5%. Nordstrom envisions earnings per share of $3.25-$3.50 for fiscal 2020.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision flatlined during the past month. The consensus estimate has shifted -241.79% due to these changes.
Currently, Nordstrom has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Nordstrom has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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