Nordstrom Q2 Meets, Reaffirms - Analyst Blog

Nordstrom Inc. (JWN) posted earnings growth of 37.5% to 66 cents a share in the second quarter of fiscal 2010, versus 48 cents in the year-ago period. Earnings per share matched the Zacks Consensus Estimate.

However, shares of Nordstrom fell more than 4% in early morning trade on the NYSE as the company reiterated its earnings guidance of $2.50 to $2.65 per share for fiscal 2010, while investors were expecting a more upbeat outlook. The Zacks Consensus Estimate for the fiscal year is currently pegged at $2.63 per share, which edged up a penny over the past 2 months.

Nordstrom’s same-store sales and top-line trends were also encouraging. Total revenues grew 12.7% to $2,515 million from $2,232 million in the prior year period on the heels of an 8.4% growth in same-store sales.

During the quarter, Multi-channel same-store sales jumped 9.9%, driven by the Jewelry, Dresses and Women’s Shoes categories. Full-line comparable store sales logged a growth of 8.2%, driven by strong performances in the Midwest and the South. However, overall comparable store sales growth was partially offset by a 0.9% decline Nordstrom Rack same-store sales.

Improved merchandise margin coupled with lower buying and occupancy costs led to a 133 basis points (bps) year-over-year expansion in gross margin to 37.8% in the quarter. Conversely, retail selling, general and administrative expenses, as a percentage of sales, rose 60 bps primarily due to increased organizational, marketing and technology expenses as well as higher fulfillment costs. However, credit selling, general and administrative expenses fell 15.6% year-over-year to $65 million.

Consequently, Nordstrom’s operating income posted a growth of 32.0% year-over-year to $272 million, while operating margin expanded 160 bps to 10.8% from 9.2% in the prior year quarter.

Nordstrom ended the fiscal 2010 second quarter with a cash hoard of $1,137 million, compared to $519 million in the year-ago quarter. Long-term debt (including current portion) at the end of the quarter stood at $2,800 million, reflecting a capitalization ratio of 60.7%. During the first half of fiscal 2010, Nordstrom generated $489 million of cash from operations, received $498 million from borrowings and utilized $353 million towards debt repayment and $192 million towards capital expenditure.

During the second quarter of fiscal 2010, Nordstrom opened a Rack Store in New York and relocated a full-line store in in Cerritos, CA. The company also stated that it plans to open a full-line store in Santa Monica, CA as well as 9 Rack stores across Virginia, California, Florida, Illinois, North Carolina and Missouri in the third quarter of the fiscal year.

We currently have a short-term Zacks #3 Rank ('Hold') rating and a long-term Neutral recommendation on the company.