Chain of Apparel store operator Nordstrom Inc. (JWN) will report its fourth quarter earnings results on February 16 after the market closes. The results of the company will indicate the amount spent by consumers on luxury items. This is on the back of strong spending for luxury items during the just concluded holiday season. The results would indicate whether the spending momentum can be seen to indicate faster or slower economic recovery.
However, there is also concern about the European debt crisis hampering the growth of retail sales. In addition, the latest quarter results will throw some light on Nordstrom's initiative on free shipping for online shoppers to take on market leader Amazon's free shipping service at the cost of lower margins. It remains to be seen whether Nordstrom has benefited from free shipping or its profit got hurt by weaker margins. The results will also indicate the behavior of purchasers to buy online.
For the month of January, the company reported 5 percent increase in its same store sales. This was slightly lower than analysts' estimation of 5.3 percent growth.
Wall Street analysts are estimating the Seattle, Washington-based Nordstrom to deliver earnings of $1.10 a share on revenues of $3.18 billion for the fourth quarter. This represents earnings upside of 5.8 percent on revenue growth of 12.8 percent.
Last year, the company earned $1.04 a share on revenues of $2.82 billion.
For the full year, Street is expecting the company to earn $3.13 a share on revenues of $10.59 billion.
Third Quarter Results
Nordstrom reported net income of $127 million, up 7.2 percent from $119 million and earnings rose 11.3 percent to 59 cents a share from 53 cents a share in the year-ago quarter. Net sales increased 14.2 percent to $2.383 billion from $2.087 billion, while total revenues grew 13.6 percent to $2.478 billion from $2.182 billion in the previous year quarter. Analysts predicted the company to earn 59 cents a share on revenues of $2.39 billion.
During the last four quarters, Nordstrom's earnings failed to miss analysts' predictions in the first quarter of 2011 and the remaining three quarters, it could top estimations in two quarters while meeting predictions in one quarter. The company earned 59 cents a share, 80 cents a share, 65 cents a share and $1.04 a share in the last four quarters.
In the last four quarters, the company generated total revenues of $2.478 billion, $2.81 billion, $2.32 billion and $2.92 billion respectively. During the same period, gross margins were 39.02 percent, 38.68 percent, 40.38 percent and 39.71 percent indicating volatility. Similarly, operating margins were 9.69 percent, 11.39 percent, 11.71 percent and 13.91 percent respectively indicating sluggishness.
Analysts Take
While seven analysts have Strong Buy rating, four analysts are recommending Buy on Nordstrom shares. Significantly, 11 analysts have Hold rating, whereas two analysts term the stock as Underperformer.
iStock Punch
Nordstrom needs to work on improving its gross margins as well as operating margins. The company's operating margins slipped to single digit in the third quarter from double digit until the second quarter. The holiday season could further erode operating margins as the company needed to taken the burden of free shipping. While free shipping is needed to boost online sales, the company needs to find ways to improve its margins for better profitability.