Nordstrom (JWN) Pre-Earnings Assessment: Is This a Fashion Stock to Watch? Nordstrom's (JWN) revenue and earnings topped analysts' expectations in the last reported quarter. The fashion retailer's long-term outlook looks bright, driven by its diverse product offerings and strategic moves to...
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Nordstrom's (JWN) revenue and earnings topped analysts' expectations in the last reported quarter. The fashion retailer's long-term outlook looks bright, driven by its diverse product offerings and strategic moves to expand its retail presence. Amid inflation-led bleak demand, should you add this fashion stock to your watchlist before its third-quarter financial release? Read on….
Nordstrom, Inc. (JWN), a leading fashion company, is set to report its third quarter 2023 financial results after the market closes. Analysts expect the company's revenue and EPS for the quarter (ended October 2023) to decline 3.6% and 35.4% year-over-year to $3.42 billion and $0.13, respectively. JWN has been witnessing decelerating inflation due to dampened consumer spending.
However, JWN reported a beat on top and bottom lines in the second quarter of fiscal year 2023. The fashion retailer posted second-quarter revenue of $3.77 billion, compared to analysts' estimate of $3.69 billion. Its EPS came in at $0.84, above the consensus estimate of $0.47.
Moreover, the company has an impressive earnings surprise history as it surpassed the consensus EPS estimates in each of the trailing four quarters.
"We've worked hard to improve our operating model, and our solid results reflect the continued progress we made against our top priorities to improve Nordstrom Rack performance, increase inventory productivity and deliver efficiencies through supply chain optimization," said Erik Nordstrom, JWN's CEO.
"These 2023 priorities improve the way we operate and drive profitability in the near term, and better position us to succeed and deliver value to our shareholders in the long-term. Looking ahead, we remain confident in our ability to deliver on these priorities, all while keeping the customer at the center of everything we do," he added.
On October 3, the fashion retailer announced plans to open a new Nordstrom Rack in San Antonio, Texas. With the addition of this new location, two new stores opened this fall in Denton and Allen and another opened location in San Antonio; JWN will operate 22 Nordstrom Rack stores and 8 Nordstrom stores in Texas. The store is expected to open in fall 2024.
Such strategic moves present a high-growth opportunity for the company to increase its retail footprint and introduce diverse and distinctive product offerings to a new set of customers, broadening its customer base.
Nordstrom will pay a quarterly dividend of $0.19 on December 13, 2023. The company's annual dividend of $0.76 translates to a yield of 5.04% at the prevailing share price. Its four-year average dividend yield is 3.02%.
Shares of JWN have gained 4.2% over the past month to close the last trading session at $15.09.
Let's look at factors that could influence JWN's performance in the upcoming months.
Solid Financials
For the second quarter that ended July 29, 2023, JWN's net sales increased 19.5% quarter-over-quarter to $3.66 billion, while its total revenues rose 18.6% from the year-ago value to $3.77 billion. The company's adjusted EBITDA came in at $316 million, up 78.5% sequentially.
In addition, the company's net earnings were $137 million, compared to a net loss of $205 million in the previous year and an increase of 8.7% year-over-year. Its adjusted EPS significantly grew quarter-on-quarter to $0.84. This compared to an adjusted EPS of $0.81 in the same period of 2022.
As of July 29, 2023, JWN's cash and cash equivalents stood at $885 million, compared to $687 million as of January 28, 2023. The company's current assets totaled $3.51 billion, compared to $3.21 billion as of January 28, 2023.
Favorable Analyst Estimates
Analysts expect JWN's EPS for the fiscal year (ending January 2024) to come in at $2.01, indicating an increase of 20.1% year-over-year. Further, the company's EPS and revenue for the fiscal 2025 first quarter (ending April 2024) are expected to grow 4.9% and 1.4% year-over-year to $0.07 and $3.22 billion, respectively.
Robust Profitability
JWN's trailing-12-month levered FCF margin of 5.58% is 4.5% higher than the 5.34% industry average. Likewise, the stock's trailing-12-month ROTC of 6.15% is 3.5% higher than the industry average of 5.94%. Also, its trailing-12-month CAPEX/Sales of 3.26% is 3.7% higher than the 3.14% industry average.
Furthermore, the stock's trailing-12-month asset turnover ratio of 1.65x is 65.6% higher than the industry average of 1.00x.
Low Valuation
In terms of forward non-GAAP P/E, JWN is currently trading at 7.49x, 49.3% lower than the industry average of 14.78x. Also, the stock's forward EV/Sales and EV/EBITDA of 0.41x and 5.43x are 64.4% and 43.7% lower than the industry averages of 1.15x and 9.64x, respectively.
In addition, the stock's forward Price/Sales multiple of 0.17 is 80.1% lower than the industry average of 0.83. Its forward Price/Cash Flow of 3.50x is 63.1% lower than the 9.47x industry average.
POWR Ratings Reflect Promise
JWN's robust fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, translating to Buy in our proprietary system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. JWN has a B grade for Value and Quality, consistent with its lower-than-industry valuation and higher-than-industry profitability, respectively.
In addition, the stock has a B grade for Growth, in sync with its solid financial performance in the last reported quarter.
JWN is ranked #14 out of 62 stocks in the B-rated Fashion & Luxury industry.
Beyond what I have stated above, we have also given JWN grades for Growth, Sentiment, Momentum, and Stability. Get access to all the JWN ratings here.
Bottom Line
Fashion retailer JWN topped analysts' estimates for revenue and earnings in the second quarter of 2023. The company's solid results reflect the continued progress on its key priorities of Nordstrom Rack improvement, inventory productivity, and supply chain optimization.
Furthermore, the retailer's long-term prospects appear promising, driven by its diverse and distinctive product portfolio and strategic initiatives to expand its retail footprint. Given its solid financials, low valuation, accelerating profitability, and bright long-term outlook, JWN could be an ideal investment now.
How Does Nordstrom, Inc. (JWN) Stack Up Against Its Peers?
While JWN has an overall POWR Rating of B, investors could also check out these other stocks within the Fashion & Luxury industry with A (Strong Buy) or B (Buy) rating: J. Jill, Inc. (JILL), Weyco Group, Inc. (WEYS), and Vera Bradley, Inc. (VRA).
For exploring more A and B-rated fashion stocks, click here.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
JWN shares were unchanged in premarket trading Monday. Year-to-date, JWN has declined -3.16%, versus a 19.18% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet's keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet's looks to help retail investors understand the underlying factors before making investment decisions.
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