Nordstrom Struts
Updated from 4:35 p.m. EST
Nordstrom
(JWN) - Get Report
blew through fourth-quarter earnings estimates on a 12% jump in sales.
The upscale department store chain earned $104.35 million, or 74 cents a share, in the quarter on sales of $1.93 billion. The company's per-share earnings rose 68% from the fourth quarter a year earlier, when it earned $60.03 million, or 44 cents a share, on $1.75 billion in sales.
Wall Street had projected that the retailer would earn 66 cents a share on $1.90 billion in revenue, according to Thomson First Call.
Nordstrom shares closed down 87 cents, or 2.1%, to $39.78 in regular trading Thursday; after hours, the stock rose 18 cents, or 0.5%, to $39.96.
For the first quarter of fiscal 2004, the company expects to earn between 23 cents to 28 cents a share on same-store growth of 4% to 6%. For the full fiscal year, Nordstrom forecasts earnings of $2.02 to $2.08 a share on comparable-store sales growth of 1% to 3%.
Analysts estimated the company would earn 27 cents a share on $1.43 billion in sales in the first quarter and $2.01 on $6.82 billion in sales for the full year.
While the midpoint of its first-quarter guidance was below Wall Street's estimate, Nordstrom said a debt retirement in the first quarter will lower earnings by $16 million to $18 million, or 8 cents a share. But that retirement will lower its interest expense by 2 cents a share in subsequent quarters, the company said.
The retailer benefited from strong sales at its older stores in the quarter. The company's same-store sales grew by 8.5% in the period, more than twice its projected 2% to 4% range. (Same-store sales compare results at outlets open more than a year.)
"We were encouraged to see across board top-line strength," said CFO Michael Koppel on a conference call.
Perhaps as impressive was the improvement in the company's gross profit margin, which increased 3.47 percentage points as a portion of sales to 36.77%. Gross margin represents the difference between what a company charges customers for its products and its direct costs of providing those products. Koppel attributed the rise to a greater proportion of full-price sales; reduced "shrink," or inventory loss; and the fact that sales grew faster than occupancy and buying costs.
Those gains were partially offset by an increase in Nordstrom's operating costs. Such expenses increased 51 basis points as a portion of sales to 29.1%. Koppel blamed the rise on increased incentive pay. Nordstrom's stock and financial performance exceeded management's estimates, thus accounting for bigger-than-expected bonuses and stock awards, he said.
For the full year, Nordstrom earned $242.84 million, or $1.76 a share, on $6.49 billion in sales. In the prior year, the company posted profits of $90.22 million, or 66 cents a share, on sales of $5.98 billion.
Nordstrom's stellar sales and bottom-line performance has a lot to do with its recent inventory, said Rob Wilson, who covers the company for Tiburon Research Group. The company has done a good job of getting products on its shelves and racks that customers want to buy, he said. That's why the company's gross margins were so good: Customers were willing to pay full price for good products, Wilson said.
Nordstrom's success with its inventory will likely continue for at least the next several months, he said.
"I think this is the safest stock in retail in the first quarter, maybe the first half of this year," Wilson said.
While the company faces more difficult comparisons in the back half of the year, it could see the benefit of a couple of initiatives, Wilson said. Nordstrom has upgraded its inventory and point-of-sale technology systems, which analysts expect will help the company boost its sales while reducing inventory costs. Meanwhile, the company has revamped its home products inventory, which should boost sales in that category, Wilson said.
"I think they're going to compete more effectively against some of the other guys that do well in that area," he said. "I'm not going to say that they're going to take away sales from
Williams-Sonoma
(WSM) - Get Report
or
Crate & Barrel
, but it could goose their comps a little bit." (Wilson doesn't hold Nordstrom shares and Tiburon doesn't do investment banking.)
Despite the strong quarter and the bright outlook for the company going forward, Gary Farber, partner in Seattle-based hedge fund Nightingale & Farber, said his firm will likely sell its Nordstrom stake in coming weeks. Nightingale & Farber has owned the company since its stock was at $19 a share, and its philosophy is to sell off stocks while they are on the way up, rather than after they hit a pothole, Farber said.
Not that Farber expects any potholes anytime soon. He just believes that other stocks will likely provide greater near-term returns.
"This is really a turnaround story. They've really turned it around," said Farber. "There was nothing not good in the quarter."