Nordstrom (JWN) Down 1% Since Last Earnings Report: Can It Rebound?

A month has gone by since the last earnings report for Nordstrom (JWN). Shares have lost about 1% in that time frame, outperforming 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 the most recent earnings report in order to get a better handle on the important catalysts.

Nordstrom Posts Narrower-Than-Expected Q1 Loss, View Hike

Nordstrom posted impressive first-quarter fiscal 2022 results. Both top and bottom lines surpassed the Zacks Consensus Estimate and grew year over year. Results gained from solid demand, positive pricing, lower markdowns and broad-based growth across core categories and regions. Core categories, including men's and women's apparel, shoes, and designer, performed well. Consumers refreshing their wardrobes to get back to the office, for travel and other social activities also contributed to the quarterly results.

Also, it is progressing well with its More Reasons to Rack campaign, which led to increased brand awareness and boosted traffic. In the reported quarter, JWN opened its first ASOS co-branded store at the Grove in Los Angeles.

As part of its market strategy, the company launched additional pickup options, which have received positive customer feedback. Buy Online Pick Up in Store also remains one of the most used facilities. Management revealed plans to expand next-day order pickup options to more than 60 additional Rack stores. It also intends to launch a sustainable shoe brand, Allbirds, which will offer men's and women's shoes in select stores. The collection will be introduced on Nordstrom.com later this summer.

Quarterly Highlights

Nordstrom posted an adjusted loss of 6 cents per share, reflecting a sharp improvement from the year-ago loss of 64 cents. The metric also surpassed the Zacks Consensus Estimate of a loss of 8 cents per share.

Total revenues grew 18.6% year over year to $3,569 million and beat the Zacks Consensus Estimate of $3,332 million. This marked the seventh straight quarter of sequential top-line growth. Net sales also advanced 18.7% year over year to $3,467 million. Credit Card net revenues grew 16% from the prior-year quarter to $102 million.

For first-quarter fiscal 2022, net sales for the Nordstrom brand rose 23.5% year over year to $2,289 million. Sales for the Nordstrom Rack brand advanced 10.3% year over year to $1,178 million. Both Nordstrom and Nordstrom Rack brands exceeded the pre-pandemic levels.

Digital sales remained flat year over year as customers shopped more from stores. For the fiscal first quarter, digital sales represented 39% of net sales compared with 46% in the year-ago period.

Nordstrom's gross profit margin expanded 190 basis points (bps) year over year to 32.8% for the reported quarter. This substantial growth resulted from higher merchandise margins, stemming from lower markdowns and positive pricing impacts, as well as lower buying and occupancy costs. Ending inventory grew 23.7% year over year.

Selling, general and administrative (“SG&A”) expenses, as a percentage of sales, contracted 320 bps year over year to 33.6% for the fiscal first quarter, owing to robust sales growth.

Earnings before interest and taxes (“EBIT”) of $73 million reflected significant growth from a loss of $85 million in the year-ago quarter. The increase mainly resulted from higher sales volume and expanded merchandise margins. Adjusted EBIT was $32 million against the year-ago quarter’s reported loss of $85 million.

Other Financials

Nordstrom ended first-quarter fiscal 2022 with a strong balance sheet. Available liquidity as of Apr 30, 2022, was $1.3 billion, including $484 million of cash and cash equivalents, and $800 million available in its revolving line of credit. It had long-term debt (net of current liabilities) of $2,854 million and total shareholders’ equity of $589 million.

As of Apr 30, 2022, the company provided $187 million of net cash for operating activities and spent $96 million as capital expenditure.

The company recently approved a dividend of 19 cents, payable Jun 15, to shareholders of record as of May 31. It also announced a share repurchase program worth $500 million.

Outlook

Driven by the solid quarterly results and gains from the sale of the company's interest in a corporate office building and an impairment charge related to a Trunk Club property, management raised the fiscal 2022 view.

The company anticipates total year-over-year revenue growth of 6-8%, up from the aforementioned 5-7% rise. Adjusted earnings are envisioned to be $3.20-$3.50, which compares favorably with the prior stated $3.15-$3.50. EBIT margin is likely to be 5.8-6.2%, up from the earlier mentioned 5-6%. Adjusted EBIT is expected to be 5.6-6%.

It also predicts gross margin improvement and SG&A leverage stemming from higher sales, particularly in the first half of the year. This is likely to aid the adjusted EBIT margin in fiscal 2022.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month.

VGM Scores

At this time, Nordstrom has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Charting a somewhat similar path, 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.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, 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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