High-end fashion retailer Nordstrom, Inc. (NYSE: JWN) reported fiscal 2016 first-quarter earnings that were well below the analysts’ estimates. Following the results, the share price of Nordstrom declined 13.42% to close at $39.16 on Friday. On Monday, the stock touched a new 12-month low of $37.99, before closing at $38.54. However, as explained below, considering the restructuring plans of the company, it seems that the worst is temporarily over for the stock.
Net sales for the fiscal 2016 first-quarter increased to $3.192 billion, from $3.115 billion in the first quarter last year. The revenue estimate of analysts was $3.28 billion for the first quarter.
Net earnings for the first quarter declined sharply to $46 million or $0.26 per share, from $128 million or $0.66 per share in the corresponding period last year. The Wall Street estimates were $0.45 per share for the first quarter. To cope up with the decline in earnings, the management is making adjustments to the inventory and expense plans.
At the end of the first quarter, the gross profit of the company remains at a healthy 34.2%. The 1.64% decrease in the gross profit percentage on a y-o-y basis was mainly due to a higher markdown to realign inventory according to the changing trends.
At the end of the first quarter, the inventory grew 5.4%, while the sales increased by 2.5%. Still, the negative spread of 3% was lower than the 7% negative spread reported in the fiscal 2015 fourth-quarter. Nordstrom reported opening 240,000 new accounts in the first quarter of fiscal 2016. Including this, the company has 4.7 million active members contributing 38% of the total revenue. The rewards loyalty program continues to spur growth. Thus, the company is in the process of expanding the program with a tender neutral (any shopper with a US address can benefit irrespective of the manner in which they pay for the purchase) loyalty program.
At the end of the first quarter, the return on capital is 10%. Though it has declined from 12.2% a year ago, still, the returns are appreciable. The PE ratio of the stock is currently 13.84.
Thus, the share price can be expected to go up in the short-term. It should be noted that the long-term trend remains weak as of now. Long positions should be taken only with the aim to dilute within a month.
Technically, the stock has major support at 37.20. On the upside, resistance exists at 47. The stochastic indicator points to an extremely oversold situation.
Thus, at this point in time, it is recommended that binary options traders should use a one-touch call option contract. The trader should also make it a point to choose a target level lower than or equal to $45. It should work better if the expiry date of the one-touch call option contract falls within the first week of June.
Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.
