Nordstrom Beats on Solid Comps - Analyst Blog

Nordstrom Inc. (JWN) posted earnings growth of 42.6% to reach 53 cents a share in the third quarter of fiscal 2010 from 38 cents earned in the year-ago period. Earnings per share beat the Zacks Consensus Estimate of 51 cents.

Quarterly Details

Nordstrom's same-store sales and top-line trends were also encouraging. Total revenues grew 11.7% to $2,087 million from $1,868 million in the prior-year period on the heels of a 5.8% growth in same-store sales. Total revenue fell short of the Zacks Consensus Estimate of $2,124 million.

During the quarter, Multi-channel same-store sales jumped 7.3%, driven by the Jewelry, Dresses and Women's Shoes categories. Full-line same-store sales growth was driven by strong performances in the Midwest and the Northwest. However, overall same-store sales growth was partially offset by a 2.2% decline in Nordstrom Rack same-store sales. The company expects same-store sales to grow by 6% in fiscal 2010.

Improved merchandise margin coupled with lower buying and occupancy costs led to a 100 basis point (bps) year-over-year expansion in gross margin to 39.0% in the quarter. Conversely, retail selling as well as general and administrative expenses increased $69 million to $569 million in the quarter, primarily due to increased marketing and technology expenses as well as higher volume of sales. However, credit selling, general and administrative expenses fell 24.5% year over year to $61 million. The company expects gross margin to increase by 100 to 115 basis points in fiscal 2010.

Consequently, Nordstrom's operating income posted a growth of 28.5% year over year to $221 million, while operating margin expanded 150 bps to 10.2% from 8.7% in the prior-year quarter.

Balance Sheet and Cash Flow

Nordstrom ended the quarter with a cash hoard of $1,046 million, compared with $484 million in the year-ago quarter. Long-term debt (including current portion) at the end of the quarter stood at $2,806 million, reflecting a debt-to-capitalization ratio of 59.9%. Year to date, Nordstrom generated $561 million of cash from operations, received $498 million from borrowings, and utilized $354 million for debt repayment and $295 million for capital expenditure.

Store Update

During the third quarter of fiscal 2010, Nordstrom opened a full-line store at Santa Monica. It also opened nine Rack stores and relocated one store.

Guidance

Encouraged by the performance in the third quarter, the company increased its earnings guidance to $2.60 to $2.65 per share from $2.50 to $2.65 for fiscal 2010. The Zacks Consensus Estimate for the fiscal year is currently pegged at $2.64 per share, which edged up a penny over the past 2 months.

Nordstrom currently has a short-term Zacks #3 Rank ('Hold') rating. We retain our long-term Neutral recommendation on the company.