The holiday season is a key period for large retailers, and Nordstrom (NYSE: JWN), in particular, has wanted to show investors that it could bounce back from poor conditions earlier in 2016. Yet holiday performance from many retailers has been poor, and coming into Thursday's fourth-quarter financial report, Nordstrom investors weren't sure whether the company would be able to deliver the growth they wanted to see. The high-end department-store chain was able to top its own expectations, but its outlook for the coming year wasn't quite as strong as most investors foresaw.
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Let's take a closer look at Nordstrom to see how it did, and what lies ahead for the retailer in the coming year.
Image source: Nordstrom.
Nordstrom moves forward
Nordstrom's fourth-quarter results showed the opportunities and challenges that the retail industry faces right now. Total revenue was up 3%, to $4.32 billion, but that was slightly less than the 4% growth rate that most investors had expected to see. Net income of $201 million was up 12% from year-ago levels, and the resulting $1.15 per share in earnings matched the consensus forecast. Yet after making allowances for extraordinary items, Nordstrom reported adjusted earnings of $1.37 per share.
Yet even with the headline numbers looking reasonably good, Nordstrom had to deal with some headwinds. Comparable sales for the quarter were down 0.9%, closing the fiscal year with a 0.4% overall decline in comps. That was disappointing after better performance in previous quarters.
Nordstrom continued to see greater difficulties in its premium namesake brand. The Nordstrom brand saw comparable sales fall 2.7%, leading to a 1.1% drop in segment revenue. Strength in women's apparel and beauty weren't enough to pull the overall company's number higher, and the East was the best region geographically. However, the discount Nordstrom Rack concept kept doing well. Revenue was up double-digit percentages for the quarter, and comparable-store sales were up 4.3%.
Nordstrom worked hard to try to squeeze as much profit as it could from its sales. Gross profit margin climbed more than a full percentage point, to 36%, and Nordstrom said that it had strong inventory execution and reduced the amount of competitive markdowns it had to use during the period. Lower overhead costs also contributed to bottom-line performance.
Can Nordstrom climb higher?
Expansion will remain a key component of Nordstrom's growth in the future. The retailer said that it will concentrate on its Nordstrom Rack concept for most of its store openings in fiscal 2017, with only one brand-new premium store opening in Toronto and two Nordstrom relocations in California. By contrast, 15 new Nordstrom Rack stores will open in areas across the country.
Yet Nordstrom's fiscal 2017 guidance wasn't entirely positive in the eyes of some investors. The company expects a 3% to 4% increase in net sales during the year, and it believes that comparable sales will remain flat compared to 2016 levels. Earnings of $2.75 to $3 per share would be slightly below the current consensus estimate for $3.06 per share, reflecting Nordstrom's difficulty predicting how well it might be able to rebound if industry conditions improve.
Investors can also take heart in the fact that Nordstrom is aggressively buying back shares. The retailer spent $189 million to buy back about 4 million shares during the quarter, and has $1 billion left under its current authorizations. That amounts to nearly 15% of Nordstrom's current market capitalization, showing just how serious the company is about its positive reputation.
Nordstrom investors were fairly pleased with the results, and the stock climbed about 2.5% in after-hours trading following the announcement. Still, Nordstrom has a lot of work left to do in order to shore up the health of its fundamental business for the foreseeable future. Without more favorable conditions going forward, Nordstrom could find it difficult to sustain the growth that investors will want to see in the long run.
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