Nordstrom, Inc. reported net earnings of $156.8 million, or 60 cents per diluted share, for the first fiscal quarter ended May 5, compared to $131.2 million, and 48 cents per diluted share, in the year-ago quarter. Total sales in the first quarter increased 9.3% to $1.95 billion from $1.79 billion during the same period in fiscal 2006. First quarter same-store sales increased 9.5%.
Earnings per diluted share in the first quarter increased 24% compared to the same quarter last year. Continued improvement in the company's execution of its merchandising strategy resulted in sales growth which contributed to profit margin expansion.
The company said that strong regular price sales across all major merchandise categories drove the sales increase, as customers responded favorably to spring season fashion merchandise throughout the quarter. Merchandise categories with performance above the full-line store average for the quarter were designer apparel, accessories, and women's apparel. Sales momentum in their online store continued to be strong, as same-store sales results exceeded the mid-teen planned growth rate.
Gross profit, as a percent of sales, increased 66 basis points compared to last year's first quarter result. Sales leverage on fixed costs in buying and occupancy expenses primarily contributed to gross profit rate expansion, along with improved merchandise margin across categories.
Selling, general and administrative expenses as a percent to sales decreased 32 basis points versus the prior year. Overall, fixed expenses during the first quarter performed in-line with plans. In addition, the company recorded one-time expenses of approximately $4 million over plan related to the launch of a new fashion rewards program. Existing credit customers whose 2006 purchases in their stores qualified them for upper-tier level status have been granted reward benefits that they may redeem immediately. These expenses impacted the SG&A rate for the first quarter by 20 basis points and earnings per diluted share by a penny.
The company completed an $850 million securitization transaction backed by the company's co-branded Visa and private label receivables at the end of the first quarter of fiscal 2007. As part of the transaction, $350 million in off-balance sheet debt was retired. Separately, JWN repaid $200 million in off-balance sheet notes that matured during the quarter.
The company recently announced its plans to open a new Nordstrom store at University Town Center in Sarasota, Fla. The two-level store will be 138,000 square feet and is scheduled to open in fall 2010.
Also, the company recently announced plans to open a 35,000-square-foot Rack store at Park Lane in Dallas. The Park Lane Rack will be the company's third Rack store in Texas and is scheduled to open in fall 2008.
For the fiscal year ending February 2, 2008, the company anticipates earnings per diluted share in the range of $2.81 to $2.90, increased from the previous range of $2.78 to $2.84. The outlook includes consideration for the effects of the timing shift in the 2007 4-5-4 calendar, the company's securitization transaction backed by the co-branded Visa and private label receivables, and other non-comparable items. Outlined in the table below are the anticipated relative effects on diluted earnings per share from non- comparable items expected for the remaining quarters of the 2007 fiscal year.
Updated full-year 2007 operating plan:
Fiscal 2007
Same-store Sales 3% to 4% increase
Gross Profit (%) 35 to 45 basis point increase
Selling, General and Admin. Expense (%) 5 to 15 basis point decrease
Interest Expense, net Flat
Other Income including Finance Charges $20 to $30 million increase
Effective Tax Rate 38.5%
Earnings per Diluted Share $2.81 to $2.90
Diluted Shares Outstanding 261 million
Prior Year Earnings per Diluted Share $2.55
Actual and planned performance for the quarters of fiscal 2007:
First Second Third Fourth Fiscal
Quarter Quarter Quarter Quarter 2007
(Actual) (Plan) (Plan) (Plan) (Plan)
Same-store sales: 9.5% 1% to 2% 4% to 5% 2% to 3% 3% to 4%
Earnings per
diluted share:
(a.) Expected
results from
comparable
operations: $0.59 $0.70 to $0.59 to $1.03 to $2.91 to
$0.73 $0.62 $1.06 $3.00
(b.) Impact
of including
non-comparable
events:
1. Securitization
transaction(1) ($0.01) ($0.03) ($0.02) ($0.01) ($0.06)
2. 53rd week
timing shift
& calendar $0.02 ($0.03) $0.03 ($0.02) -
3. 2006 Visa /
MasterCard
settlement - ($0.02) - - ($0.02)
4. 2006 53rd
week results - - - ($0.02) ($0.02)
Reported results
(combine a+b
above) $0.60 $0.62 to $0.61 to $0.98 to $2.81 to
$0.65 $0.64 $1.01 $2.90
(1) Notes on the $850 million securitization transaction:
* With the completion of the securitization transaction, the company
began a new accounting treatment for the co-branded Visa receivables
and securitized debt, which is secured by both the co-branded Visa
and private label receivables. In the first quarter, pre-existing
co-branded Visa receivables totaling $943 million were recorded on
the balance sheet initially at fair value with no allowance for
credit losses. Normal write-offs for uncollectible Visa receivables
and other costs net, estimated at $20 million, will be recorded in
Other Income and Expenses over the eight month period following the
transaction. This period is equal to the average repayment life of
the acquired receivables. This expense activity is expected to
reduce annual earnings per diluted share by $0.05 and will be non-
recurring in future periods beyond the 2007 fiscal year.
* Income and expenses from our co-branded Visa receivables that were
previously reported net in Other Income and Expenses (under
securitization accounting guidance) are reclassified in our earnings
statement. In fiscal 2007, bad debt and write-off expense is
expected to increase approximately $25 to $35 million and impact the
SG&A rate by 30 to 40 basis points, with an accelerated portion in
the second quarter. Interest expense, partially offset by interest
income, will increase approximately $20 to $25 million. Other
income including finance charges will increase $35 to $45 million.
The net combination of these expenses and income is anticipated to
reduce annual earnings per diluted share by $0.01.
Second Quarter Outlook
The timing shift in the 2007 4-5-4 calendar is expected to have a negative impact on second quarter 2007 sales results.
The months of May and June are anticipated to be negatively impacted by the timing shift of the fiscal 2006 53rd week. When compared to the planned same-store sales rate of one to two percent for the 2007 second quarter, the monthly same-store sales rate in May is expected be in-line, in June is expected to be below, and in July is expected to be above the anticipated quarterly rate.
For the second quarter of 2007, earnings per diluted share are expected in the range of 62 cents to 65 cents, including an eight cents impact from the non-comparable items described in the performance table earlier.
