For the quarter, JWN reported EPS of $0.39, which was well below the $0.65 consensus. However, included in this number was a one-time $0.28/share charge related to its customers' credit card accounts. Specifically, JWN disclosed that it had identified that some cardholders with delinquent accounts were being charged higher interest rates than they should have been. The company estimates that less than 4% of its cardholders were affected. To remedy the situation, these customers will receive a refund or credit, with JWN stating that it has taken appropriate steps to make sure the error does not happen again.
Excluding this charge, JWN would have reported EPS of $0.67, slightly beating the $0.65 consensus.
Another factor that is hurting the stock is that its revenue and its full-price comparable sales figures look pretty soft. For the quarter, revenue was up a modest 3% to $3.75 bln, exceeding the $3.67 bln consensus, while comparable sales were up 2.3%. Although +2.3% is decent, what investors seem to be focusing on is the paltry 0.4% growth achieved by the company’s full-price stores.
But there are other considerations involved here, as well. During the earnings call last night, management stated that an unfavorable timing shift negatively impacted revenue growth by 100 basis points. Elaborating further, there was a reversal from the Q2 impact of the new revenue recognition standard as it relates to last year's "Anniversary Sale." When combining second and third quarter net sales, which removes these timing impacts, net sales increased 5.1% compared with the same period last year, with full-price comparable sales up 2.5%, compared to flat comparable sales growth in the year-ago period.
Removing the effects of the new revenue recognition standard also would have pushed its gross margin higher by about 120 basis points, putting the company virtually in-line with its gross margin of 33.3% in 2Q17.
JWN also had a strong quarter in terms of its digital business, as digital sales jumped by 20%, accounting for 30% of sales on a year-to-date basis. Furthermore, Nordstrom.com, the company’s leading digital portal, now has about 2.5 mln visitors per day, putting it in the top ten of all e-commerce retailers in the country. Another area of strength has been the success of its loyalty program, contributing 56% of total sales, up about 15% from this time last year. Lastly, in terms of catalysts, the company is also bolstering its Nordstrom Rack brand, adding three new stores in Canada during the quarter, giving it a total of six new openings for the year. Management commented last night that these new stores are performing ahead of expectations.
In the earnings press release, JWN also provided updated guidance for FY19, forecasting EPS of $3.55-$3.65, right in-line with the $3.60 consensus. But it actually raised the low end of its prior guidance range of $3.50-$3.65. Similarly, JWN raised its revenue outlook to $15.5-$15.6 bln from $15.4-$15.5 bln, although that is still short of the $15.87 bln consensus.
To conclude, there were a few different one-time moving parts here relevant to JWN's Q3 results -- each of which negatively impacted results. It could be argued, then, that the company's performance is not as bad as the stock's performance today might suggest. On that note, we'd also point out that with the dive lower, shares are now trading at a key $50 support level, which could also entice some value-oriented investors looking to take advantage of the sell-off.