CTRN Citi Trends Inc

Upscale department store operator, Nordstrom Inc. (JWN) reported fourth quarter fiscal 2012 earnings of $1.40 per share, above the Zacks Consensus Estimate of $1.34. Quarterly earnings gained 26.1% from the prior-year period earnings of $1.11 per share.

For fiscal 2012, the company’s earnings per share soared 13.4% year over year to $3.56, while it beat the Zacks Consensus Estimate of $3.50.

Total revenue

Nordstrom's same-store sales and top-line trends also remained encouraging driven by robust performance at the company's stores as well as the inclusion of an additional week in fiscal 2012. Total revenue rose 13.3% during the quarter to $3,702 million and surpassed the Zacks Consensus Estimate of $3,686 million.

Total revenue for the quarter reflected a 13.5% increase in Net Retail sales to $3,596 million and 9.3% increase in Credit Card revenues to $106 million.

Total revenue grew 11.7% to $12,148 million in fiscal 2012, comprising $11,762 million (up 12.1% year over year) from Net Retail Sales and $386 million (up 1.6%) from Credit Card revenues. It also surpassed the Zacks Consensus Estimate of $12,079 million.

Comps for the fourth quarter gained 6.3% on top of the year-ago quarter, comprising a 2.2% increase in Nordstrom full-line store comps, 31% increase in Direct Sales comps and 7.1% increase in Nordstrom Rack store comps. Fiscal 2012 comps registered growth of 7.3% compared to a 7.2% increase last year.

Moreover, Nordstrom's comps (including full-line and direct businesses) strengthened 6.1% during the quarter, driven by robust performance in Men's Apparel, Cosmetics, Women’s Apparel and Kids' Apparel categories.

Operational Update

Driven by the increased expenses related to the Fashion Rewards program that aims at enhancing customer relations, offset by markdown gains, Nordstrom's gross profit margin for the quarter contracted 10 basis points to 39.5% compared to 39.6% in the year-ago quarter.

Further, retail selling, general and administrative expenses elevated 11.5% to $912 million in the quarter. However, as a percentage of total revenue, it contracted 40 basis points to 24.6% from the year-ago quarter, mainly due to leverage on higher sales, partly offset by higher fulfillment costs related to accelerating the delivery for shipped sales.

On the other hand, credit selling, general and administrative expenses declined 8.6% year over year to $53 million.

Consequently, Nordstrom's operating income augmented 20% to $498 million compared with $417 million reported in the prior-year period, while operating margin expanded 70 bps to 13.5%.

Balance Sheet and Cash Flow

Nordstrom ended the year with cash and cash equivalents of $1,285 million compared with $1,877 million at the end of fiscal 2011. Long-term debt at year-end stood at $3,124 million. During fiscal 2012, Nordstrom generated $1,110 million in cash from operations.

Capital expenditures as of Feb 2, 2013 were $513 million. During the fourth quarter, the company bought back nearly 4.2 million shares for about $219 million.

Guidance

Looking ahead, the company forecasts fiscal 2013 earnings per share excluding the impact of future share repurchases, in the range of $3.65 – $3.80 per share, based on estimated sales growth of 4.5% to 6.5%. The current Zacks Consensus Estimate is pegged at $3.96 per share. The company projects total same-store sales growth in the range of 3.5% – 5.5%.

Moreover, management projects retail selling, general and administrative expenses, as a percentage of retail sales, to decline 10 to 30 basis points. Further, gross margin is expected to contract between 10 bps and 30 bps year over year.

In fiscal 2013, the company expects capital expenditure, net of property incentives, to be in the range of $750 – $790 million, which are slated towards the development of its Rack and full-line stores as well as enhancement of its e-Commerce sales.

Our Take

We believe that this upscale department store chain will continue to report better financial results in the near future. It is also expected to continue attracting more shoppers with its various sales channels as well as offers. Nordstrom currently has a Zacks Rank #2 (Buy).

Other stocks that are performing well in the retail-apparel/shoe sector include Express Inc. (EXPR), Citi Trends Inc. (CTRN) and Abercrombie & Fitch Co. (ANF), all of which carry a Zacks Rank #1 (Strong Buy).

 
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