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Nordstrom Inc. (JWN) Q4 Earnings Preview: Managing A Solid Quarter

 February 21, 2013 03:14 PM

(By Rich Bieglmeier) Nordstrom Inc. (JWN) will report its fourth quarter and fiscal year 2012 financial results and 2013 outlook after the close of the financial markets on Thursday, February 21, 2013. The announcement will be followed by a conference call at 4:45 p.m. Eastern Standard Time, in which senior management will comment on the company's 2012 financial results and 2013 outlook.

Wall Street anticipates that JWN will earn $1.34 for the quarter. iStock expects department store to report earnings that will beat Wall Street's consensus number. The iEstimate is $1.36, a 2 cent upside surprise.

[Related -Nordstrom, Inc. (JWN) Q3 Earnings Preview: What To Expect?]

Nordstrom is a fashion specialty retailer, offers apparel, shoes, cosmetics, and accessories for women, men, and children in the United States. It operates in two segments, Retail and Credit.

The retailer delivered its twelfth consecutive quarter of total company same-store sales increases in Q3 2012. The fourth quarter of 2012 will make it a lucky 13 in a row as management reported, "Fourth quarter same-store sales increased 6.3 percent compared with the same period in fiscal 2011."

Perhaps, positive guidance for the first fiscal quarter of 2013 could be on the way as JWN experienced an 11.4 percent increase in same-store sales for January. The increase runs counter to many other retailers that are suffering from high gas prices, delayed tax-returns and payroll-tax hikes limiting consumer spending at the retail level.

[Related -Nordstrom, Inc. (JWN): Fundamental Stock Research Analysis]

Last year, Nordstrom earned $1.11 for the fourth quarter, delivering a penny upside surprise compared to the $1.10 consensus. Nordstrom will certainly have to do better than 6% for profits to climb from $1.11 to the consensus of $1.34.

The key will be margins. Although same store sales might be on the rise, the question is whether merchandise had to be discounted, and by how much, to draw consumers to the cash register.

Investors can get a sense of Nordstrom's situation by examining the company's financial statements, specifically inventory. The more of it, the more likely the company is to offer up sales prices to move stale product out the door.

The first taste of inventory we get in JWN's 10-Q is inventory turnover, which fell from a reading of 5.23 for Q4 2011 to 5.07 in Q4 2012. Year-over-year (YoY), inventory at the end of the third quarter for 2012 was up 9.5% compared to the previous year. On an inventory per square foot basis, the increase is a smaller 7.4%. Considering that retailers are gearing up for the Christmas shopping season, the uptick appears to be mostly in-line with Q4's same store sales growth of 6.3%. There shouldn't be too much hangover going into Q1.  

Credit is the second item on the list iStock is examining. Nordstrom offers credit cards i.e. financing to customers. Revenues for the division were down a fraction for the first nine months of the year, falling from $283 million to $280 million. Meanwhile, costs for operating the finance arm dropped at a much faster rate; so, despite a slightly smaller number, profitability remained flat.

iStock doesn't see anything nasty happening with accounts receivables (AR) to worry us. As a matter of fact, AR increased at 4.66% while revenues gained 13.8% YoY. That's healthy, actually.

Overall: it appears Nordstrom Inc.'s (JWN) management did an excellent job of managing inventory for the holiday shopping season while holding costs and expenses in check. Same store sales and inventory control should help the company put a solid quarter together and meet the iEstimate.

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