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Nordstrom (JWN) Tops Earnings & Revenue Q2 Estimates, Ups View

Nordstrom (JWN) Q2 results gain from improved sales trends and solid sales in the Anniversary event. Management also raises the fiscal 2021 view.

This story originally appeared on Zacks

Nordstrom, Inc. JWN reported impressive second-quarter fiscal 2021 results, wherein the top and bottom lines rose on a year-over-year basis. Results gained from solid demand, better inventory, stringent cost-cutting actions as well as improved sales trends in Nordstrom and Nordstrom Rack across regions and categories. Enhanced customer engagement, improved merchandise assortment and robust performance in the anniversary sale also contributed to quarterly growth. The company witnessed strength in shoes, apparel and accessories on a sequential basis with active, home and designer categories getting back to pre-pandemic level. Management lifted 2021 view.

It remains focused on closer-to-you strategy which aims to link stores and services to expedite deliveries, expanding online offerings and adding cheaper merchandise at its Rack off-price stores, to improve customers shopping experience.

Despite solid results and raised fiscal outlook, shares of Nordstrom declined 8% in the after-hours trading session on Aug 24. This might be due to sluggish quarterly revenues compared with second-quarter fiscal 2019. The Zacks Rank #3 (Hold) stock has gained 10% in the past three months against the industry’s fall of 6.3%.

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Q2 Highlights

Nordstrom posted adjusted earnings of 49 cents per share, which came ahead of the year-ago quarter’s loss of $1.62. The figure surpassed the Zacks Consensus Estimate of 26 cents.

Total revenues surged 96.4% year over year to $3,657 million and beat the Zacks Consensus Estimate of $3,382 million. The company’s revenues represented a 700-bps sequential improvement from the first quarter of fiscal 2021, marking the fourth straight quarter of sequential top-line growth. However, net sales skyrocketed 101% year over year to $3,565 million while the metric declined 6% from second-quarter fiscal 2019. Credit Card net revenues grew 9.5% to $92 million.

The company witnessed sturdy sales in the Anniversary event, with 1% growth from second-quarter fiscal 2019. The uptick can be attributable to improved traffic and sales, both in stores and online, stemming from positive customer response, trendy products and expanded capabilities, including convenient pick-up options at Nordstrom and Nordstrom Rack stores. The final week of the event fell in third-quarter fiscal 2021, which adversely impacted the top line by roughly 200 basis points (bps) compared with second-quarter fiscal 2019.

In second-quarter fiscal 2021, net sales for the Nordstrom brand skyrocketed 127% year over year to $2,417 million. Sales for the Nordstrom Rack brand rose 61% year over year to $1,148 million. Nordstrom’s sales improved 800 bps sequentially, whereas Nordstrom Rack sales rose 500 bps. However, sales for Nordstrom and Nordstrom Rack brands reflected declines of 5% and 8% from second-quarter fiscal 2019, respectively.

Momentum in the digital business continued to aid the top line. Digital sales advanced 30% year over year and 24% from the second quarter of fiscal 2019. The digital business witnessed gains from improved traffic across both Nordstrom and Nordstrom Rack. In the fiscal second quarter, digital sales represented 40% of net sales compared with 61% in the year-ago quarter. The company also completed the integration of Rack.com onto Nordstrom.com, thus, offering a better customer experience.  

Nordstrom's gross profit margin expanded 1,370 bps year over year to 35% in the reported quarter. This substantial growth resulted from lower markdowns and leverage from higher net sales. However, gross margin remained flat as compared with second-quarter fiscal 2019 as lower markdowns somewhat offset drab sales.

Ending inventory grew 13% from second-quarter fiscal 2019, owing to the timing shift of the anniversary sale and efforts to improve the supply chain and advanced sales trends.

Selling, general and administrative (“SG&A”) expenses, as a percentage of sales, declined 1,350 bps year over year to 33% in the fiscal second quarter. The SG&A decline was mainly driven by leverage on higher sales and the continued benefit of permanently reducing overhead costs by 15%. SG&A expenses also gained from the absence of $250 million in charges associated with the impacts of COVID-19 in fiscal 2020. However, SG&A expenses increased 170 bps from second-quarter fiscal 2019 due to higher COVID-related labor and freight costs.

Earnings before interest and taxes (“EBIT”) of $151 million reflected significant growth from a loss of $370 million in the year-ago quarter. The increase was mainly the result of higher sales volume and expanded merchandise margins. EBIT declined by $65 million from second-quarter fiscal 2019 due to higher freight, labor costs and drab sales volume, offset by gains from the resetting of cost structures in 2020.

Other Financials

Nordstrom ended second-quarter fiscal 2021 with a strong balance sheet. Available liquidity as of Jul 31, 2021, was $1.3 billion, including $487 million of cash and cash equivalents. It had long-term debt (net of current liabilities) of $2,849 million and total shareholders’ equity of $268 million.

As of Jul 31, 2021, the company used $545 million of net cash for operating activities and spent $217 million as capital expenditure.

Nordstrom, Inc. Price, Consensus and EPS Surprise


Nordstrom, Inc. Price, Consensus and EPS Surprise

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

Fiscal 2021 Outlook

Driven by solid quarterly results, management raised the fiscal 2021 view. The company anticipates revenue growth of 35%, up from the earlier mentioned 25%. It expects an EBIT margin of 3-3.5% compared with the previously mentioned 3%. Nordstrom forecast sales improvement in the third and fourth quarters of fiscal 2021 on a sequential basis.

EBIT margin is likely to rise further, with gross margin improvement in the fiscal fourth quarter, driven by better inventory management and lower promotions. SG&A costs are expected to be higher in the second half of fiscal 2021 due to higher freight and labor costs.

Better-Ranked Stocks in the Retail Space

DICK’S Sporting Goods DKS presently sports a Zacks Rank #1 (Strong Buy). It has an expected long-term earnings growth rate of 7.1%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Tractor Supply Company TSCO currently has a long-term expected earnings growth rate of 9.7% and a Zacks Rank #2 (Buy).

Dollar General Corporation DG, a Zacks Rank #2 stock at present, has an expected long-term earnings growth rate of 11.3%.

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