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Nordstrom Q1 Earnings Miss, Sales Beat; Maintains View - Analyst Blog

Nordstrom Inc.JWN began fiscal 2015 on a mixed note, with better-than-expected top-line results for the first quarter, while the bottom line disappointed. Following the results, the company reaffirmed its sales and earnings outlook for fiscal 2015.

We believe that the company's customer strategy coupled with efficient inventory and expense management proved to be effective, leading to growth across channels

The company's first-quarter earnings of 66 cents per share declined 8.3% from the prior-year quarter figure of 72 cents and also missed the Zacks Consensus Estimate of 71 cents. Results were impacted by the Trunk Club acquisition and Nordstrom's ongoing foray into the Canadian markets.

Nordstrom Inc. - Earnings Surprise | FindTheCompany

Total Revenue

On the positive side, Nordstrom's total revenue of $3,215 million registered a 9.7% year-over-year rise and surpassed the Zacks Consensus Estimate of $3,154 million. The increase was primarily led by new store openings, the Trunk Club acquisition, spectacular online sales and robust comparable-store sales (comps) growth.

Shares of the company climbed 1.2% on the index in the after-market trading session following the earnings announcement.

The company's Net Retail sales increased 9.8% to $3,115 million, while its Credit Card revenues advanced 6.4% to $100 million.

Net sales at the company's full-line stores inched up 0.9%, driven by the opening of two new full-line stores in the quarter, while sales at Rack stores were up 12% on robust volume growth at existing stores and the opening of 10 stores. Coming to the company's online business, Nordstrom.com sales for the quarter surged 20% and Nordstromrack.com/HauteLook net sales soared 51% on the back of enhanced merchandise offerings.

Total comps improved 4.4% in the quarter, consistent with trends witnessed throughout the year. The company registered a 4.2% rise at Nordstrom comps (which consists of full-line stores and Nordstrom.com businesses), while comps at Nordstrom Rack reflected a 0.2% dip. The company's comps at full-line stores inched up 0.5% compared with last year, an improvement from year-to-date trends.

Q1 Operational Update

Nordstrom's gross profit margin improved 7 basis points (bps) to 35.9%. Total selling, general and administrative (SG&A) expenses escalated about 15% to $971 million in the quarter. Moreover, as a percentage of sales, SG&A expenses increased 141 bps to 31.2%, primarily due to elevated expenses related to the Trunk Club acquisition, Canadian venture and ongoing technology and fulfillment investments.

Consequently, Nordstrom's operating income decreased nearly 7.6% to $245 million from $265 million in the prior-year period. Moreover, operating margin contracted 140 bps to 7.9%.

Balance Sheet and Cash Flow

Nordstrom ended the quarter with cash and cash equivalents of $769 million, substantially lower than the prior-year quarter figure of $1,015 million. Long-term debt, net of current liabilities was $3,138 million versus $3,110 million in the prior-year period. During the first quarter, Nordstrom generated $208 million in cash from operations.

Capital expenditures as of May 2, 2015, were $259 million. During the first quarter, the company bought back nearly 0.4 million shares for about $33 million. Currently, Nordstrom has about $969 million remaining under its share repurchase authorization.

Store Update

During the quarter, the company opened 2 full-line stores and 10 new Rack stores. This brings the company's total store count to 303 from 270 at the end of the first quarter of fiscal 2014.

Going forward, management plans to open 5 full-line stores (including 2 Canadian stores) and 27 Nordstrom Rack stores in fiscal 2015.

Guidance

Following the impressive first quarter, Nordstrom reiterated its guidance for fiscal 2015. The company continues to expect net sales to increase nearly 7%-9% in the fiscal. Comps are projected to improve about 2%-4%.

Gross margin is still expected to contract in the range of 5-15 bps, while SG&A expenses, as a percentage of sales, are expected to rise 55-65 bps.

Consequently, the company envisions earnings in the range of $3.65-$3.80 per share, reflecting a 2% decline to 2% increase from the fiscal 2014 level.

Zacks Rank

Nordstrom currently carries a Zacks Rank #3 (Hold). Better-ranked stocks in the apparel and shoe space include L Brands Inc. LB , with a Zacks Rank #1 (Strong Buy), Bebe Stores, Inc. BEBE and American Eagle Outfitters Inc. AEO , each with a Zacks Rank #2 (Buy).

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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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