It has been about a month since the last earnings report for Nordstrom (JWN). Shares have added about 4.1% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Nordstrom due for a pullback? 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 drivers.
Nordstrom Q2 Earnings & Revenues Beat on Solid Demand
Nordstrom posted impressive second-quarter fiscal 2022 results, wherein both top and bottom lines surpassed the Zacks Consensus Estimate and grew year over year. Results gained from double-digit growth in men's and shoes, and women's apparel and beauty as customers returned to occasions.
Gains from strategic initiatives and strong Anniversary sales, driven by improved customer experience and increased engagement, bode well. Going into the second half of fiscal 2022, management expects to aggressively right-size its inventory, invest in its supply chain and enhance its merchandising capabilities.
However, sluggish customer traffic and demand beginning in late June, particularly in Nordstrom Rack, acted as deterrents.
Nordstrom posted adjusted earnings of 81 cents per share, reflecting a sharp improvement from the year-ago figure of 49 cents. The metric also surpassed the Zacks Consensus Estimate as well as our estimate of 80 cents per share.
Total revenues grew 12% year over year to $4,095 million and beat the Zacks Consensus Estimate of $3,966 million and our estimate of $3,970 million. This marked the eighth straight quarter of sequential top-line growth. Net sales advanced 12% year over year to $3,991 million and beat our estimate of $3,878.6 million. Credit Card net revenues grew 13% from the prior-year quarter to $104 million.
For second-quarter fiscal 2022, net sales for the Nordstrom brand rose 14.7% year over year to $2,771 million and surpassed our estimate of $2,668.1 million. Sales for the Nordstrom Rack brand advanced 6.3% year over year to $1,220 million and beat our estimate of $1,210.5 million. Both Nordstrom and Nordstrom Rack brands exceeded the pre-pandemic levels.
Digital sales rose 6.3% year over year, driven by the shift in the timing of the Anniversary Sale. For the fiscal second quarter, digital sales represented 38% of net sales.
Nordstrom's gross profit margin expanded 65 basis points (bps) year over year to 35.2% for the reported quarter. This substantial growth resulted from reduced buying and occupancy costs, partly offset by higher markdown rates.
Selling, general and administrative (“SG&A”) expenses, as a percentage of sales, contracted 15 bps year over year to 32.8% for the fiscal second quarter, owing to robust sales growth.
Earnings before interest and taxes (“EBIT”) of $202 million reflected growth from $151 million in the year-ago quarter. The increase mainly resulted from higher sales, which somewhat offset higher markdowns and rising labor costs. Adjusted EBIT was $210 million in the reported quarter.
The company ended second-quarter fiscal 2022 with a strong balance sheet. Available liquidity as of Jul 30, 2022, was $1.3 billion, including $494 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 $2,853 million and total shareholders’ equity of $663 million.
As of Jul 30, 2022, the company provided $373 million of net cash for operating activities and spent $215 million as capital expenditure.
The company recently approved a dividend of 19 cents, payable Sep 14, to shareholders of record as of Aug 30. It also bought back 1.5 million shares worth $35 million, as part of its $500-million share repurchase program. Following this, JWN has $465 million available under the share repurchase authorization.
Despite the solid quarterly results, management slashed the view for fiscal 2022 due to declining discretionary spending stemming from inflation. The company expects total year-over-year revenue growth of 5-7%, down from the aforementioned 6-8% rise. Adjusted earnings are envisioned to be $2.30-$2.60, which compares unfavorably with the prior stated $3.20-$3.50. The EBIT margin is likely to be 4.5-4.9%, down from the earlier mentioned 5.8-6.2%.
Adjusted EBIT is expected to be 4.3-4.7%, down from the prior stated 5.6-6%. However, the metric suggests improvement from the 3.4% reported last year, driven by lower SG&A costs. For fiscal 2022, the gross profit is envisioned to remain flat year over year. On the flip side, clearance activity and higher markdowns are likely to affect the gross profit by $200 million.
For the fiscal third quarter, it expects a mid-single-digit decline in revenues, as evident from the demand deceleration we saw in the latter part of the second quarter. Also, the EBIT margin is likely to be down 200 bps year over year.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended downward during the past month.
The consensus estimate has shifted -84.15% due to these changes.
At this time, Nordstrom has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top 20% 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.
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.
Performance of an Industry Player
Nordstrom is part of the Zacks Retail - Apparel and Shoes industry. Over the past month, Foot Locker (FL), a stock from the same industry, has gained 3%. The company reported its results for the quarter ended July 2022 more than a month ago.
Foot Locker reported revenues of $2.07 billion in the last reported quarter, representing a year-over-year change of -9.2%. EPS of $1.10 for the same period compares with $2.21 a year ago.
Foot Locker is expected to post earnings of $1.10 per share for the current quarter, representing a year-over-year change of -43%. Over the last 30 days, the Zacks Consensus Estimate has changed -1%.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for Foot Locker. Also, the stock has a VGM Score of D.
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