Earnings versus expectations
Nordstrom’s (JWN) earnings have surpassed analysts’ expectations for the past three consecutive quarters. For fiscal 1Q17, which ended on April 29, 2017, analysts expect the company’s adjusted EPS (earnings per share) to rise 3.8% on a year-over-year basis to $0.27. The adjusted EPS of rival Macy’s (M) is expected to fall to $0.35 in fiscal 1Q17 from $0.40 in fiscal 1Q16 due to lower sales.
Recap of past earnings
In fiscal 4Q16, which ended on January 28, 2017, Nordstrom’s adjusted EPS was $1.27, significantly ahead of consensus analysts’ estimate of $1.15. The company’s adjusted EPS rose 8.6% on a year-over-year basis in fiscal 4Q16. The rise was driven by a rise in revenue and efficiencies in the company’s inventory and expense management strategies.
Nordstrom’s gross margin rose to 36.0% in fiscal 4Q16, from 34.9% in fiscal 4Q15. This margin expansion was a result of efficient inventory management, reduced markdowns, and the company’s product differentiation strategies. Nordstrom’s operating margin expanded to 9.3% in fiscal 4Q16, from 7.5% in fiscal 4Q15. The company’s higher operating margin in 4Q16 was due to a non-operational legal settlement gain of $22.0 million.
Based on guidance issued in February 2017, Nordstrom expects adjusted EPS of $2.75–$3 in fiscal 2016. That compares to adjusted EPS of $3.04 (excluding a non-operational legal settlement gain) in fiscal 2016. Despite higher sales, Nordstrom’s earnings in fiscal 2017 are expected to be under pressure due to the company’s investments in technology, expenses to support online sales growth, and incremental costs related to the Manhattan store.
Let’s look next at analysts’ recommendations for Nordstrom stock.