Can Nordstrom (JWN) Turn Its Dismal Earnings Trend In Q2?

Nordstrom Inc. (NYSE:JWN) is slated to report second-quarter fiscal 2016 results on Aug 11. Last quarter, the company had delivered a negative earnings surprise of 42.2%.

In fact, the company has underperformed the Zacks Consensus Estimate by an average of 15.7% over the trailing four quarters, with a negative surprise in the preceding three quarters. Let’s see how things are shaping up for this announcement.

Factors Influencing This Quarter

As evident from the aforementioned history, Nordstrom has been delivering lesser-than-expected performance for quite a while. Moreover, the company lowered its outlook for fiscal 2016 following the last quarter’s results. Management now envisions fiscal 2016 earnings per share in the range of $2.50–$2.70, down from $3.10–$3.35 expected earlier.

Also, a shift in its great Anniversary sale event by a week is likely to weigh on second-quarter comps by about 200 bps, while the same is anticipated to boost third-quarter comps by 250 bps. Considering such a subdued outlook, we are not very optimistic about the company’s second-quarter results.

However, Nordstrom’s customer strategy, strong brand image and consistent expansion endeavors bode well. We believe the company’s strategic investments should help expand its market share. We also appreciate Nordstrom’s move of boosting capital efficiency through the sale of its credit card portfolio and using the proceeds to lower debt and reward shareholders. That said, we would wait and see what is actually in store for this leading fashion specialty retailer in the second quarter.

Earnings Whispers

Our proven model does not conclusively show that Nordstrom is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. This is not the case here, as you will see below:

Zacks ESP: Earnings ESP for Nordstrom is currently pegged at -1.82%. This is because the Most Accurate estimate of 54 cents stands below the Zacks Consensus Estimate of 55 cents.

Zacks Rank: Nordstrom currently has a Zacks Rank #2 (Buy), which increases the predictive power of ESP. However, the company’s ESP of -1.82% makes surprise prediction difficult.

We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks That Warrant a Look

Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:

Macy’s Inc. (NYSE:M) , scheduled to report earnings on Aug 11, has an Earnings ESP of +31.71% and a Zacks Rank #3 (Hold).

Lowe’s Companies Inc. (NYSE:LOW) , scheduled to report earnings on Aug 17, has an Earnings ESP of +2.84% and a Zacks Rank #2.

L Brands Inc. (NYSE:LB) , scheduled to report earnings on Aug 18, has an Earnings ESP of +8.93% and a Zacks Rank #3.