Nordstrom Inc. Q2 Net Jumps 20 Percent on Strong Comps Increase

Nordstrom, Inc. reported net earnings of $175 million, or 80 cents per diluted share, for the second quarter ended July 30, 2011. This represented an increase of 20 percent compared with net earnings of $146 million, or 66 cents per diluted share, for the same quarter last year.

Second quarter same-store sales increased 7.3 percent compared with the same period in fiscal 2010. Net sales in the second quarter were $2.72 billion, an increase of 12.4 percent compared with net sales of $2.42 billion during the same period in fiscal 2010.

Nordstrom’s second quarter performance benefited from the company’s continued efforts to enhance the customer experience in stores and online. During the quarter, Nordstrom held three of its five annual promotional events. The Half-Yearly Sale for Women and Kids and the Half-Yearly Sale for Men are both clearance events, while the Anniversary Sale offers new merchandise at a discounted price. All of these events achieved same-store sales increases, reflecting strong execution.

Nordstrom net sales, which include results from the full-line and Direct businesses, increased $186 million, or 8.8 percent, compared with the same period in fiscal 2010, with same-store sales up 7.9 percent. Top-performing merchandise categories included Shoes, Cosmetics and Designer. The South and Midwest regions were the top-performing geographic areas for full-line stores relative to the second quarter of 2010. The Direct channel continued to show strong sales growth, outpacing the overall Nordstrom increase.

Nordstrom Rack net sales increased $92 million, or 23.4 percent, compared with the same period in fiscal 2010, with same-store sales up 4.8 percent.

Gross profit, as a percentage of net sales, increased approximately 135 basis points compared with last year’s second quarter. The improvement was driven by increases in gross margin from continued strength in regular-price selling and inventory turn, and to a lesser extent, by the ability to leverage buying and occupancy expenses during the quarter.

Retail selling, general and administrative expenses increased $95 million compared with last year’s second quarter. The increase is primarily due to higher sales volume, HauteLook operating and purchase accounting expenses and 21 new stores since last year’s second quarter.

The Credit segment continued to contribute to an improved customer experience and to overall performance. Customer payment rates increased, resulting in improved delinquency and write-off trends, and a corresponding decrease in finance charge revenue. Annualized net write-offs were 7.2 percent of average credit card receivables during the quarter, down from 9.0 percent in the second quarter of 2010. Delinquencies as a percentage of credit card receivables at the end of the second quarter were 2.7 percent, down from 3.5 percent at the end of the second quarter of 2010. As a result, the reserve for bad debt was reduced by $10 million to $125 million.

Earnings before interest and taxes increased $48 million to $320 million, or 11.4 percent of total revenues, from $272 million, or 10.8 percent of total revenues, in last year’s second quarter. This year’s second quarter earnings before interest and taxes were reduced by approximately $13 million, or $0.05 per share, related to HauteLook, including purchase accounting charges and the impact from share dilution. This reduction in earnings from HauteLook was in line with the company’s internal plans.