Earnings preview: Q3 marks a key point in the Nordstrom revival saga

Come retail earnings season and investors are all ears for Nordstrom’s third-quarter results. And why not. Nordstrom is an inspiring retail story of defying death predictions and getting gradually back on track with customer-centric strategies.

The department store chain had reported impressive second-quarter results in August, sending its shares up 10%. Investors were especially pleased to see a jump in comp sales to 4%, handsomely beating the street estimate of a modest 0.8%. Earnings had surged 46% on a revenue spike of 7%.

JWN shares have rallied 23% since the second quarter results, spawning theories of a revival.

As the company reports third-quarter results on Thursday, November 15, after the closing bell, investors will be looking deep into the numbers to figure out whether the revival theories are indeed true.

Part of the reason why Nordstrom reported such brilliant figures in the second quarter was a shift in its annual sale event from Q3 to Q2. The Anniversary Sale is a huge revenue-generating factor for the company. Hence lack of this massive sale event is definitely going to bite the department store’s top line in Q3.

Nordstrom is expected to post earnings of 64 cents per share on a revenue of $3.68 billion during the third quarter. During the prior-year quarter, the company had reported earnings of 67 cents per share on a revenue of $3.63 billion. During last year’s Q3, results were hurt by hurricanes in Puerto Rico, Florida, and Texas.

The company is clearly buoyed by the solid second-quarter results, due to which it raised EPS for fiscal 2018 to $3.50-$3.65 from $3.35-$3.55. Nordstrom has been aggressively investing in store expansion, with a focus on the Canadian market. It has also been bumping its e-commerce platform and supply-chain channels, all of which is expected to bear results in the long term.

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However, the company may feel the pinch in the short term due to these additional expense burden.

In the retrospect, the third quarter will give a clearer picture of the theories sparked in the prior sequential quarter. Analysts remain cautious on the stock, with five out of 10 covering the stock recommending a HOLD rating. Four others have BUY rating on the stock and one has a SELL rating.

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