Nordstrom, Inc. reported net earnings of $20 million, or 13 cents a share. Excluding a gain on the sale of the company’s interest in a corporate office building and an impairment charge related to a Trunk Club property, the company posted an adjusted loss per share of 6 cents, basically in line with Wall Street’s consensus estimate calling for a loss of 5 cents.
Additionally, first-quarter EPS was negatively impacted by $0.05 as a result of discrete tax expenses, primarily related to stock-based compensation, which increased the quarterly effective tax rate by 19.3 percent of pretax earnings. The company continues to expect a full-year income tax rate of approximately 27 percent.
For the first quarter, net sales increased 18.7 percent versus the same period in fiscal 2021, exceeding pre-pandemic sales levels, and gross merchandise value (“GMV”) increased 19.6 percent. During the quarter, Nordstrom banner net sales increased 23.5 percent and GMV increased 24.8 percent. Net sales for Nordstrom Rack increased 10.3 percent and continued to show sequential improvement towards pre-pandemic sales levels.
“Our focus on serving the customer through our interconnected model with Nordstrom and Nordstrom Rack, a scaled digital platform and a strong store fleet positioned us to capitalize on demand from customers who shopped for long-awaited occasions and refreshed their closets,” said Erik Nordstrom, chief executive officer of Nordstrom, Inc. “In the first quarter, we drove strong topline growth with broad-based improvement across core categories and geographies. Importantly, we made progress on our strategic initiatives and continue to focus on increasing profitability on the path to achieving our financial targets.”
In the first quarter, core categories including men’s and women’s apparel, shoes and designer had the strongest growth against 2021 as customers refreshed their wardrobes for occasions such as social events, travel and return to office. Improvements were broad-based across regions, with urban stores having the strongest growth. Merchandise margins improved as a result of favorable pricing impacts and lower markdown rates.
“Customers remain at the center of everything we do and we continue to provide them with expanded and relevant choices and the differentiated service they expect from us, delivering on our commitment to get ‘closer to you’,” said Pete Nordstrom, president and chief brand officer of Nordstrom, Inc. “We’re pleased with the momentum we’re seeing in the business and excited about our plans for the upcoming Anniversary Sale. Looking ahead, we are committed to driving additional merchandise margin improvement and increasing supply chain productivity, to deliver incremental profitability while continuing to elevate the customer experience.”
As previously announced on May 18, 2022, the board of directors declared a quarterly cash dividend of $0.19 per share to be paid to shareholders of record at the close of business on May 31, 2022, payable on June 15, 2022. The board of directors also authorized a new $500 million share repurchase program on May 18, 2022.
2022 First Quarter Summary
- Total company net sales increased 18.7 percent and GMV increased 19.6 percent compared with the same period in fiscal 2021;
- For the Nordstrom banner, net sales increased 23.5 percent, exceeding pre-pandemic levels, and GMV increased 24.8 percent compared with the same period in fiscal 2021;
- For the Nordstrom Rack banner, net sales increased 10.3 percent compared with the same period in fiscal 2021 and continued to show sequential improvement towards pre-pandemic sales levels;
- Digital sales were flat compared with the same period in fiscal 2021 as customers increasingly chose to shop in-store. Digital sales represented 39 percent of total sales during the quarter;
- Gross profit, as a percentage of net sales, of 32.8 percent increased 190 basis points compared with the same period in fiscal 2021 due to leverage on buying and occupancy costs and improved merchandise margins from favorable pricing impacts and lower markdown rates;
- Ending inventory increased 23.7 percent compared with the same period in fiscal 2021 versus an 18.7 percent increase in sales. Approximately one-quarter of the change in inventory levels versus 2021 is due to the pull-forward of Anniversary Sale receipts;
- Selling, general and administrative expenses, as a percentage of net sales, of 33.6 percent decreased by 320 basis points compared with the same period in fiscal 2021 primarily due to leverage on higher sales;
- Earnings before interest and tax (EBIT) were $73 million in the first quarter of 2022, compared with a loss before interest and taxes of $85 million during the same period in fiscal 2021 primarily due to higher sales volume and improved merchandise margins.
- Adjusted EBIT of $32 million for the first quarter of 2022 excluded a $51 million gain on the sale of the company’s interest in a corporate office building and a $10 million impairment charge related to a Trunk Club property;
- Interest expense, net of $35 million, decreased from $137 million during the same period in fiscal 2021 primarily as a result of a pre-tax debt refinancing charge of $88 million in the first quarter of 2021;
- Income tax expense was $18 million, or 46.8 percent of pretax earnings, compared with an income tax benefit of $56 million, or 25.4 percent of the pre-tax loss, in the same period in fiscal 2021;
- Income tax expenses in the first quarter of 2022 included discrete tax expenses, primarily related to stock-based compensation, which increased the quarterly effective tax rate by 19.3 percent of pretax earnings. The company continues to expect a full-year income tax rate of approximately 27 percent;
- The company ended the first quarter with $1.3 billion in available liquidity, including $484 million in cash and the full $800 million available on its revolving line of credit. In May 2022, the company entered into a new $800 million revolving credit agreement expiring in May 2027, replacing its previous revolving credit agreement that was scheduled to expire in September 2023.
2022 Fiscal Year Outlook
The company is updating its outlook to reflect first-quarter performance, including a gain on the sale of the company’s interest in a corporate office building and an impairment charge related to a Trunk Club property, resulting in the following financial expectations for fiscal 2022:
- Revenue growth, including retail sales and credit card revenues, of 6 to 8 percent versus fiscal 2021;
- EBIT margin of 5.8 to 6.2 percent of sales;
- Adjusted EBIT margin of 5.6 to 6.0 percent of sales;
- Income tax rate of approximately 27 percent;
- EPS of $3.38 to $3.68, excluding the impact of share repurchase activity, if any;
- Adjusted EPS of $3.20 to $3.50, excluding the impact of share repurchase activity, if any; AND
- Leverage ratio of approximately 2.5 times by year-end.
Photo courtesy Nordstom