Factors to Decide the Fate of Nordstrom (JWN) in Q1 Earnings

Nordstrom, Inc. JWN is scheduled to release first-quarter fiscal 2020 numbers on May 28, after the closing bell. In the last reported quarter, the fashion specialty retailer recorded a negative earnings surprise of 4.05%. In the trailing four quarters, the company’s bottom line missed the Zacks Consensus Estimate by 1.9%, on average.

The Zacks Consensus Estimate for fiscal first-quarter loss is pegged at $1.15, whereas it reported earnings of 23 cents in the year-ago period. Notably, the consensus estimate has declined in the past 30 days from a loss of 74 cents mentioned earlier. The consensus mark for sales is pegged at $2.25 billion, indicating a decline of 34.6% from the year-ago reported figure.

Key Factors to Note

In the wake of the coronavirus pandemic, Nordstrom has closed all of its stores across the United States and Canada. The effects of the extended store closures are likely to get reflected on the company’s top-line results in the to-be-reported quarter. Driven by the uncertainties, surrounding the timing of its impacts, Nordstrom rolled back its previously outlined guidance.

Nordstrom, Inc. Price and EPS Surprise

 

Nordstrom, Inc. Price and EPS Surprise

Nordstrom, Inc. price-eps-surprise | Nordstrom, Inc. Quote

Moreover, investments related to occupancy, technology, store openings, supply chain and marketing have been resulting in higher expenses over the past few quarters. On its last earnings call, management outlined plans to further make investments in its market strategy, including additional Nordstrom locals and digital capabilities. All these expenses are likely to have weighed on the company’s margins and overall profits in the to-be-reported quarter.

Notably, Nordstrom has been keen on taking the right actions to keep its operations going, with a focus on speed and flexibility to serve customers, amid the coronavirus pandemic. It has been leveraging the strength of its market strategy that focuses on providing seamless shopping experience through multiple touchpoints, including its store banners — Nordstrom and Nordstrom Rack — as well as in stores and online. Its investments in physical and digital business to match the changing customer preference have gone a long way in serving customers during the pandemic.

Nordstrom’s market strategy has been enabling it to bring inventory closer to where customers live and work, facilitating the use of its stores as fulfillment centers to enhance faster delivery, and connecting digital and physical experiences to provide curbside pickup and returns.

While stores have been temporarily closed, the company has been focusing on boosting online sales as its e-commerce site has continued to witness solid traffic and conversion. It has also been focusing on clearing excess inventory through increased marketing and promotional efforts. In the current situation, more than half of Nordstrom.com orders are fulfilled from full-line stores, and 25% of Nordstromrack.com and HauteLook.com orders are fulfilled by Nordstrom Rack stores. Nordstrom has launched a dedicated e-commerce site to serve customers in Canada, with all online sales fulfilled from the six full-line stores there. This is likely to have cushioned the top-line decline due to the extended store closures.

While the company’s efforts to curb the impacts of the coronavirus outbreak-led store closures remain commendable, these are likely to have attracted additional costs of investments in marketing strategy as well as boosting e-commerce. Additionally, Nordstrom is likely to have witnessed incremental costs for sanitization and other cleaning protocols under the health department’s guidance.

What Does the Zacks Model Say?

Our proven model does not conclusively predict an earnings beat for Nordstrom this season. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. But that’s not the case here. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Although the company carries a Zacks Rank #3, its Earnings ESP of -14.21% makes surprise prediction difficult.

Stocks With Favorable Combination

Here are some companies that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat:

Dollar General Corporation DG currently has an Earnings ESP of +6.69% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Big Lots, Inc. BIG presently has an Earnings ESP of +19.01% and a Zacks Rank #2.

Guess, Inc. GES currently has an Earnings ESP of +12.75% and a Zacks Rank #2.

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