After a long haul, Nordstrom Inc. (JWN Quick QuoteJWN - Free Report) has finally broken its dismal earnings surprise trend. Simultaneously, the company also sprung a surprise by perking up its guidance for fiscal 2016. As a result, shares of this Zacks Rank #2 (Buy) stock jumped 10.6% in the after-market trading session yesterday.

Nordstrom’s quarterly earnings of 67 cents per share were way ahead of the Zacks Consensus Estimate of 55 cents, though it slumped 38.5% year over year. The upbeat bottom-line results were driven by efficient inventory and expense management, along with increased sales at the company’s grand Anniversary Sale event.. Management stated that its Anniversary Sale event this year was one of its sterling events in a long time. 

However, as predicted, the Anniversary Sale began a week later in July, thus extending into the third quarter. This unfavorable shift weighed upon Nordstrom’s comparable store sales (comps) by nearly 250 basis points (bps), which in turn hampered net sales.

Sales

Total revenue dipped 1.4% to $3,651 million, while comps slipped 1.2%. The top line also fell short of the Zacks Consensus Estimate of $3,654.3 million.

The company’s net Retail sales inched down 0.2% to $3,592 million, while its Credit Card revenues plunged 42.7% to $59 million.

Nordstrom brand’s net sales (including U.S. and Canada full-line stores, Nordstrom.com and Trunk Club) dropped 0.4%, with comps falling 2.3%. The top-performing region during the quarter was Midwest, while the best-performing categories were Beauty and Shoes.

Coming to the Nordstrom Rack brand (that includes Nordstrom Rack stores and nordstromrack.com/HauteLook), net sales advanced 11.2%, while comps grew 5.3% on the back of growth in the Eastern region.

Given the company’s focus on the expansion of its Nordstrom Rewards loyalty program, Nordstrom gained roughly 6 million active Rewards customers in the second quarter, marking a 30% improvement from the prior quarter.    

Operational Update

Nordstrom's gross profit margin contracted 101 basis points (bps) to 34.3%, mainly on account of greater markdowns stemming from inventory alignment, coupled with greater occupancy costs.

Selling, general and administrative (SG&A) expenses, as a percentage of sales, escalated 212 bps to 29.8%, primarily due to tough year-over-year comparisons and expense deleverage on account of the unfavorable shift of Anniversary event sales volume into the third quarter.

Store Update

Year to date, Nordstrom introduced 6 Nordstrom Rack stores, alongside relocating 1 full-line store.

Financials

Nordstrom ended the quarter with cash and cash equivalents of $892 million, long-term debt net of current liabilities of $2,772 million, and total shareholders’ equity of $937 million.

During the first half of fiscal 2016, Nordstrom generated $853 million in cash from operating activities. Capital expenditures during the first half were $407 million.

Further, during the same time frame, the company repurchased nearly 1.3 million shares valued at $60 million. Currently, Nordstrom has about $751 million remaining under its share repurchase authorization.

Guidance

Management stated that the favorable customer response for its Anniversary Sale event geared the company for enhanced sales, besides enabling it to arrive at a clean inventory status for the second half of fiscal 2016.

Taking these factors and the upbeat bottom-line results into account, management raised its earnings outlook for fiscal 2016, while keeping its sales and comps view unchanged.

The company expects net sales to increase nearly 2.5%−4.5% in the fiscal, with comps estimated to grow in a -1% - +1% range.

The company now envisions fiscal 2016 earnings per share in the range of $2.60–$2.75, up from $2.50–$2.70 projected earlier. The current Zacks Consensus Estimate for fiscal 2016 stands at $2.55 per share, which is likely to witness an upward revision following the earnings release.

Also, management had earlier predicted that the shift of its great Anniversary Sale is likely to boost third-quarter comps.  

Other Stocks to Consider

Other well-ranked stocks in the same industry include Christopher & Banks Corporation with a Zacks Rank #1 (Strong Buy), and American Eagle Outfitters, Inc. (AEO Quick QuoteAEO - Free Report) and The Children's Place, Inc. (PLCE Quick QuotePLCE - Free Report) , each carrying a Zacks Rank #2.

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