Nordstrom (JWN) is set to report Q4 results today February 18 after the close.

Unlike the other department store names, Nordstrom does not report holiday sales -- and has not updated guidance since last quarter's earnings

Last quarter, JWN fell to multi-year lows after seeing a slowdown that resulted in the huge Q3 miss and lowered full year outlook. The performance was also below company expectations, which the management said was due to softer sales trends that were generally consistent across channels and merchandise categories. Comparable sales were up only 0.9% (missing estimates for the first time in the past year -- and by nearly more than 200 bps) with Nordstrom Rack comps actually declining 2.2%.

Key points

  • Current Q4 Expectations: Q4 EPS -6% to $1.24 on sales +6% y/y to $4.17 bln and comps +1%.
  • Guidance: The earnings release will include FY17/fiscal 2016 outlook (sales given as %)— current estimates are for EPS of $3.56 on sales +6.6% and comps +2.4%. JWN does not typically provide quarterly expectations with its Q4 results.
  • Margin related: Reported Q3 gross margin decline of 163 bps to 33.9% primarily due to higher markdowns in addition to the planned impact of higher occupancy costs related to store growth and the increased mix of Nordstrom Rack. Co also lowered its FY16 gross profit rate assumption to 50-60 bps decrease from +/-5 bps prior outlook.
  • Other topics of interest:
    • Nordstrom Rack will be in focus after the former bright spot turned sour last quarter. Comps specifically were huge disappointment with decline of 2.2% and investors are looking for this segment to bounce back.
    • TrunkClub—completed acquisition last August—update likely discussed during the call.
    • Expansion plans—as of last qtr the co had 323 stores (118 full-line stores in US/3 in Canada; 194 Nordstrom Racks; 8 ‘other' stores—includes Trunk Club clubhouses, Jeffrey boutiques and Last Chance/clearance stores). Co will likely provide expansion update for FY17 in the earnings release.
  • Street expectations: The street and investors alike were shocked by last quarter's results. But even at multi-year lows, some analysts seem to be maintaining cautious stance.

Based on JWN options, the current implied volatility stands at ~ 57%, which in 42% higher than the historical volatility (over the past 30 days). Based on the JWN February $52.5 straddle, the options market is currently pricing in a move of ~11% in either direction by the end of the week.