Nordstrom Inc. (JWN) posted earnings growth of 11.3% to reach 59 cents a share in the third quarter of fiscal 2011 from 53 cents per share earned in the year-ago period, primarily driven by a double-digit growth in total revenue. Earnings per share beat the Zacks Consensus Estimate by a penny.
Quarterly Details
Nordstrom’s same-store sales and top-line trends were also encouraging. Total revenue grew 13.6% to $2,478.0 million from $2,182.0 million in the prior-year period. Moreover, total revenue surpassed the Zacks Consensus Estimate of $2,452.0 million. Nordstrom’s net sales (including full-line and direct businesses) increased 14.2% to $2,383.0 million from $2,087.0 million in the year-ago quarter.
Total sales at Nordstrom Rack increased $101.0 million, or 23.6% from the year-ago quarter. However, the company’s credit card revenue remained stagnant at $95.0 million. Nordstrom now expects 2011 credit card revenue to decline in the range of $5.0 to $10.0 million.
Total same-store sales for the quarter grew 7.9%. Moreover, Nordstrom’s same-store sales (including full-line and direct businesses) jumped 9.8%, driven by the Designer, Handbags and Dresses categories. Besides, full-line same-store sales growth was led by strong performances in the Midwest and the South. Same-store sales at Nordstrom Rack increased 6.8%.
The company now expects total same-store sales to grow by approximately 6.0% in fiscal 2011, up from 4.0% to 6.0% forecasted earlier.
Gross margin for the quarter increased 40 basis points (bps) to 36.6% from 36.2% in the prior-year quarter. The company now expects 2011 gross margin to increase in the range of 45 to 55 basis points, up from its previous guidance range of 30 to 50 basis points forecasted earlier.
Retail selling as well as general and administrative expenses increased 17.8% to $670.0 million in the quarter, primarily due to increased operating expenses as well as higher volume of sales and HauteLook operating expenses and purchase accounting charges. However, credit selling, general and administrative expenses shrunk 6.6% year over year to $57.0 million.
Consequently, Nordstrom’s operating income posted an increase of $19.0 million year over year to $240.0 million, while operating margin (as a percentage of total revenue) contracted 50 bps to 9.7%.
Balance Sheet and Cash Flow
Nordstrom ended the quarter with cash and cash equivalents of $1,457.0 million compared with $1,046.0 million in the year-ago quarter. Long-term debt (including current portion) at the end of the quarter stood at $3,316.0 million. Year-to-date, Nordstrom generated $628.0 million of cash from operations while utilizing $5.0 million for debt repayment and $398.0 million for capital expenditure.
Guidance
The company now sees fiscal 2011 earnings per share in the range of $3.05 to $3.10. Currently, the Zacks Consensus Estimate for fiscal 2011 stood at $3.08 per share.
Based in Seattle, Washington, Nordstrom is a leading fashion specialty retailer in the U.S., offering high quality apparel, shoes, cosmetics and accessories for men, women and kids. The company offers both branded and private label merchandise, as well as a private label card, two Nordstrom VISA credit cards and debit cards for Nordstrom purchases.
However, Nordstrom operates in a highly fragmented specialty retail sector and faces intense competition from other well-established players, such as The Gap Inc. (GPS) and Limited Brands Inc. (LTD). The company primarily competes on the basis of fashion, quality and service.
Nordstrom’s shares maintain a Zacks #3 Rank, which translates into a short-term ‘Hold’ rating. Our long-term recommendation on the stock remains ‘Neutral’.
