Nordstrom Inc. reported third-quarter earnings exceeded year-ago levels but came in short of analysts’ estimates. The upscale retailer reiterated its outlook for the year as Nordstrom banner sales returned to 2019 levels.

Third-quarter net earnings of $64 million or $0.39 per diluted share, with earnings before interest and taxes (“EBIT”) of $127 million. Wall Street’s consensus estimate had been 56 cents.

For the third quarter ended October 30, 2021, net sales increased 18 percent to $3.64 billion versus the same period in fiscal 2020 and decreased 1 percent versus the same period in fiscal 2019. Wall Street’s consensus estimate had been $3.55 billion.

The timing of this year’s Anniversary Sale, with approximately one week falling into the third quarter of 2021, had a positive impact of approximately 200 basis points on net sales compared with fiscal 2019.

During the quarter, Nordstrom banner net sales increased 3 percent versus the third quarter of fiscal 2019, which included an approximately 300 basis point positive impact from Anniversary Sale timing, while net sales for Nordstrom Rack decreased 8 percent versus the third quarter of fiscal 2019. Sales in the home, active, designer, and beauty categories had the strongest growth compared with the third quarter of 2019. Geographically, Nordstrom’s comparable-store sales in the Southern regions, including Southern California, grew 8 percent versus 2019 and outperformed the Northern regions. Comparable sales in suburban area stores continued to be stronger than urban stores in the third quarter, with both improving sequentially over the second quarter.

“We have long benefited from a commitment to customer service, new and compelling merchandise, innovative brand partnerships and interconnected digital and physical assets. However, we need to move faster to capitalize on these strengths and profitably grow market share. We’re taking action to improve performance at Nordstrom Rack, including optimizing inventory levels, better balancing price points and increasing brand awareness. Work is also underway to improve merchandise margin across the company and ensure we have the visibility and flexibility we need to serve our customers seamlessly, despite global supply chain challenges,” said Erik Nordstrom, chief executive officer of Nordstrom, Inc. “In the third quarter, we made continued progress toward our strategic and financial goals, driven by strong digital growth, the integrated capabilities enabled by our Market Strategy and increased net sales in our Nordstrom banner stores, but we are focused on accelerating our transformation and improving results.”

Nordstrom continues to expand customer choice counts as part of its evolving merchandising strategy. Alternative partnership models beyond traditional wholesale arrangements grew to nearly 8 percent as a share of total sales, and the company’s recently announced partnerships with Fanatics and ASOS will provide a broader assortment in new and existing categories for customers, without a corresponding increase in owned inventory for the company.

“Taking lessons learned from this year’s Anniversary Sale, the team has combined the art of merchandising with data-driven insights to put the right assortment in the right place at the right time,” said Pete Nordstrom, president and chief brand officer, Nordstrom, Inc. “For the holiday season, we are excited about our plans to use our integrated network of stores and digital platforms to showcase holiday dressing, decor and gift offerings, and provide festive experiences and convenient services that make shopping easy and enjoyable for our customers.”

As Nordstrom continues to strengthen its financial position, the company remains on track to reduce its leverage ratio to approximately three times, and be in a position to return cash to shareholders, by the end of 2021.

Third Quarter 2021 Summary

  • Total company net sales increased 18 percent compared with the same period in fiscal 2020, during which the entire Anniversary Sale temporarily shifted to the third quarter. Net sales decreased 1 percent relative to the same period in fiscal 2019. The timing of this year’s Anniversary Sale, with approximately one week falling into the third quarter of 2021, had a positive impact on net sales of approximately 200 basis points compared with the third quarter of 2019.
  • For the Nordstrom banner, net sales increased 11 percent and 3 percent compared with the same periods in fiscal 2020 and fiscal 2019, respectively. The timing of this year’s Anniversary Sale had a positive impact on Nordstrom banner net sales of approximately 300 basis points compared with the third quarter of 2019. For the Nordstrom Rack banner, net sales increased 35 percent and decreased 8 percent compared with the same periods in fiscal 2020 and fiscal 2019, respectively.
  • Digital sales decreased 12 percent compared with the same period in fiscal 2020, during which the Anniversary Sale temporarily shifted to the third quarter of that year, and increased 20 percent compared with the same period in fiscal 2019. The timing of this year’s Anniversary Sale had a positive impact on company digital sales of approximately 400 basis points compared with the third quarter of 2019. Digital sales represented 40 percent of total sales during the quarter.
  • Gross profit, as a percentage of net sales, of 35 percent increased 230 basis points compared with the same period in fiscal 2020 primarily due to fewer markdowns and leverage from higher net sales. Gross profit, as a percentage of net sales, increased 80 basis points compared with the same period in fiscal 2019, driven by increased leverage on lower buying and occupancy costs as well as higher merchandise margins.
  • Ending inventory increased 13 percent compared with the same period in fiscal 2019, versus a 1 percent decrease in sales. The change in inventory levels versus 2019 was due to the company’s actions to pull forward receipts to support early holiday sales and mitigate continuing supply chain backlogs.
  • Selling, general and administrative (“SG&A”) expenses, as a percentage of net sales, of 34 percent increased 230 basis points compared with the same period in fiscal 2020 primarily as a result of labor cost pressure, partially offset by leverage on higher sales. SG&A expenses, as a percentage of net sales, increased 260 basis points compared with the same period in fiscal 2019 as a result of fulfillment and labor cost pressures, partially offset by the continued benefit from resetting the cost structure in 2020.
  • EBIT was $127 million in the third quarter of 2021, compared with $106 million during the same period in fiscal 2020 primarily due to higher sales volume and improved merchandise margins, partially offset by labor cost pressure. EBIT was $66 million lower than the third quarter of fiscal 2019 due to fulfillment and labor cost pressures, partially offset by the continued benefit from resetting the cost structure in 2020.
  • Interest expense, net, of $36 million decreased from $48 million during the same period in fiscal 2020 as a result of the redemptions of the 8.75 percent secured notes during the first quarter of fiscal 2021 and the 4.0 percent unsecured notes during the second quarter of fiscal 2021.
  • Income tax expense was $27 million, or 30 percent of pretax earnings, compared with $5 million, or 8 percent of pretax earnings, in the same period in fiscal 2020. Last year’s income tax included benefits associated with the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”).
  • Third quarter net income of $64 million increased from net income of $53 million during the same period in fiscal 2020, which included a tax benefit associated with the CARES Act of $19 million.
  • The company ended the third quarter with $867 million in available liquidity, including $267 million in cash.

Fiscal Year 2021 Outlook

The company is reaffirming the following financial expectations for fiscal 2021:

  • Revenue, including retail sales and credit card revenues, is expected to grow more than 35 percent versus fiscal 2020;
  • EBIT margin is expected to be approximately 3.0 to 3.5 percent of sales;
  • Income tax rate is expected to be approximately 27 percent; and
  • Leverage ratio is expected to be approximately 3x by year-end.

Photo courtesy Beauty Professor/Nordstrom