Will Nordstrom Follow Macy's Lead And Report A Poor Second Quarter Result?
Shares of Nordstrom (NYSE: JWN) surged more than 10 percent after the company reported an impressive first quarter result on May 15.
The upscale retailer saw its comparable-store sales rise 3.3 percent in the quarter as online sales and Rack outlet made strong contributions, while the top performing categories were accessories, women's shoes and cosmetics. Direct net sales rose 33 percent in the quarter, on top of the previous quarter's 25 percent rise.
Nordstrom typically shies away from being over promotional because of its higher-scale offerings. However, it may be important to go back to the company's fourth quarter conference call in February.
Peter Nordstrom, the company's President of Merchandising said:
"I think it's fair to say that the increased promotional activity that happened in December was more than we had expected and an area of concern for us going forward."
Investors will naturally focus on how Nordstrom performs in the quarter, especially following Macy's disappointing results and cautious comments from Macy's executives.
Nordstrom did not offer any specific second quarter guidance in its last report but expects its gross profit rate to decrease by 30 basis points to 50 basis points for the entire fiscal year. Total sales are expected to grow by 5.5 percent to 7.5 percent with comparable sales rising two percent to four percent. Finally, the company is projecting its earnings per share to be in a range of $3.75 to $3.90.
Naturally, investors will look out for any changes in full year guidance.
Deutsche: Channel checks positive
Paul Trussel of Deutsche Bank holds a positive view of Nordstrom and states that the company is “best positioned in changing retail landscape.”
Trussel conducted channel checks which led him to conclude that that the company's Anniversary Sale capped an already strong sales period for the company.
“After beating its own 1Q projections, we believe Nordstrom will now raise the mid-point of the fiscal 2014 guidance in conjunction with 2Q results,” Trussel wrote in a note to clients on July 28.
Trussel notes that investor concerns for the current are unfounded as Nordstrom “has once again stayed above the fray this quarter.” The analyst believes same-store sales will come in at the high-end of its fiscal year comp forecast.
Trussel raised Nordstrom's second quarter same-store-sales growth forecast to four percent from 3.3 percent. The Street is expecting Nordstrom to report same-store sales growth of 3.1 percent, suggesting a sequential downtick.
To support an above consensus same-store-sales growth forecast, Trussel notes the following:
1. Checks suggested a “full-line momentum” from the first quarter was sustained into the current quarter.
2. The Anniversary sale and pre-Anniversary sales events was a success due to the inclusion of brands that charge a higher price point.
3. The Rack continues to benefit from an improved product assortment.
4. The launch of Nordstromrack.com is additive to the quarter's results.
5. A favorable mix toward Rack and online shifted 500 basis points higher year over year to 40 percent of total sales.
One area of concern Trussel touches is the fact that Nordstrom's gross margin has consistently fallen each quarter. The analyst wrote:
“While the majority of the contraction historically could be explained by the shift toward online and the Rack, which have lower merchandise margins than the full-line store, a more intense promotional environment and Nordstrom's willingness to match online competitor prices have contributed to the decline of late. Part of our go-forward assumption is that gross margins for Nordstrom will be more in-line with its historical declines opposed to the material hit it experienced in the first quarter.”
Trussel is projecting Nordstrom will earn $0.94 in the second quarter on revenue of $3.412 billion.
Shares are Buy rated with a $78 price target.
JPMorgan: Higher spending a concern
Matthew Boss of JPMorgan believes that Nordstrom is a “best in class” retailer as management is focused on a long-term growth path through investments in technology and an expansion to Canada. However, investors may prefer to stay on the sidelines for the time being.
“The combination of Canada expansion, greater pre-opening costs for accelerated Rack openings the next two years and continued technology investment raises the fixed cost hurdle through fiscal 2015 in our view,” Boss wrote in a note to clients on August 11.
Boss adds that Macy's warnings over a cautious consumer could prove to be the same for Nordstrom's customers. The analyst adds that Nordstrom only holds four sale events a year, a model which “faces challenges” in today's backdrop.
Boss is projecting Nordstrom will earn $0.94 in the second quarter on revenue of $3.412 billion.
Shares are Neutral rated with a $64 price target.
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