Can Nordstrom Earnings Keep Looking Luxurious?

Nordstrom (NYSE: JWN  ) will release its quarterly report on Thursday, and with the stock having hit all-time highs last month, investors feel pretty confident about its future prospects. Yet with those share-price advances come high expectations for Nordstrom earnings, and if the upscale retailer falls short, then much of the stock's gains could disappear in a hurry.

Nordstrom has used a two-pronged approach toward serving as many customers as it can. With its namesake stores, Nordstrom appeals to high-end shoppers demanding the highest-quality merchandise and willing to pay premium prices for it. Yet it also has its Nordstrom Rack chain, which offers bargains for those of more modest means. That's been a winning combination for the retailer recently, but can its success continue? Let's take an early look at what's been happening with Nordstrom over the past quarter and what we're likely to see in its report.

Stats on Nordstrom

Analyst EPS Estimate

$0.88

Change From Year-Ago EPS

17.3%

Revenue Estimate

$3.29 billion

Change From Year-Ago Revenue

9.4%

Earnings Beats in Past 4 Quarters

2

Source: Yahoo! Finance.

Will Nordstrom earnings recover from last quarter's disappointment?
Analysts have had mixed views in recent months on the direction of Nordstrom earnings. They've boosted their July quarter estimates by $0.01 per share, but they've cut $0.02 per share from their full fiscal-year projections. The stock has stayed in a fairly tight range, rising about 2% from its levels in early May.

Nordstrom came into the quarter on a downbeat note, reporting earnings that disappointed investors. Same-store sales growth came in at only 2.7%, leading the retailer to cut its full-year forecast on comps to a range of 3% and 5%. In particular, weakness in the Nordstrom Rack segment, which saw comps rise just 0.8%, called into question whether planned expansion in store counts for the concept would be successful. Discounters TJX and Ross Stores have continued to post impressive same-store sales, so it's hard to blame industrywide factors for Nordstrom Rack's shortfall.

Meanwhile, the luxury-retail industry has gotten a lot more competitive lately as well. Saks managed to post better same-store sales in its most recent quarter, and Neiman Marcus is now planning to come public, leaving Nordstrom with a fight on its hands against large-retail department-store rivals. Moreover, concept stores have done exceedingly well in luxury, with Michael Kors having shown impressive growth by focusing on particular lifestyle lines rather than trying to follow the Nordstrom model of more all-inclusive stores.

Nevertheless, Nordstrom maintains a strong reputation for customer service that's almost unparalleled in the industry. But despite its customer focus, Nordstrom found itself in the spotlight of controversy after a report highlighted a troublesome trial program from earlier this year. Essentially, Nordstrom used a combination of video surveillance and mobile-device tracking to get information on customers, which it then used to try to boost sales and offer more customer-specific products. Although Nordstrom ended the program in May after receiving complaints, the incident shows how even high-quality companies can make mistakes in strategic judgment.

In the Nordstrom earnings report, watch to see how Nordstrom Rack fares this quarter. With so much riding on its appeal to more mainstream customers, Nordstrom needs Rack to succeed in order to avoid having to do an about-face on its overall strategic vision going forward.

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