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Will Nordstrom (JWN) Disappoint This Earnings Season?

Zacks Equity Research

Nordstrom Inc. (JWN), a leading fashion retailer, is slated to report its third-quarter 2014 earnings on Nov 13, after the closing bell. In the previous quarter, Nordstrom recorded a positive earnings surprise of 1.1%. Let’s see how things are shaping up for this announcement.

Factors Influencing This Quarter

Over the past few quarters, this upscale department store operator’s results have been benefitting from its customer strategy, reflecting growth across channels, along with efficient inventory and expense management. However, the company’s gross margin continues to contract while SG&A expenses are escalating due to Rack store expansion, elevated investment in technological upgrades and development of infrastructure in Canada. Moreover, the company expects this rise in expenses to continue throughout the fiscal year, as reflected in its guidance. As a result, we remain apprehensive about the company’s performance in the upcoming quarter.

Earnings Whispers

Our proven model does not conclusively show that Nordstrom is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP (Expected Surprise Prediction) and a Zacks Rank #1, 2 or 3 for this to happen. This is not the case here as you will see below:

Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is currently pegged at -1.41% for Nordstrom. This is because the Most Accurate estimate of 70 cents per share is above the Zacks Consensus Estimate of 71 cents.

Zacks Rank: Nordstrom carries a Zacks Rank #3 (Hold), which when combined with a negative ESP makes surprise prediction difficult. We caution against stocks with Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Other Stocks to Consider

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

Best Buy Co. Inc. (BBY) has an Earnings ESP of +4.17% and a Zacks Rank #1 (Strong Buy).

Dollar Tree Inc. (DLTR) carries Earnings ESP of +1.56% and a Zacks Rank #2 (Buy).

Foot Locker Inc. (FL) has an Earnings ESP of +1.28% and a Zacks Rank #3.

Read the Full Research Report on DLTR
Read the Full Research Report on BBY
Read the Full Research Report on FL
Read the Full Research Report on JWN


Zacks Investment Research