Nordstrom Profit rises 17%, Raises Outlook

Net sales in the third quarter were $1.87 billion, an increase of 3.5% compared with net sales of $1.80 billion during the same period in fiscal 2008.

THIRD QUARTER SUMMARY

Performance during the third quarter exceeded the internal sales and earnings plans for the company. Although there is continued uncertainty around consumer spending, the company experienced an improving trend in same-store sales in each month of the quarter while effectively managing inventory and expenses.

Full-line same-store sales in the third quarter decreased 4.2% and sales for Nordstrom Direct increased 16.4% compared with the same period in fiscal 2008. A number of the company’s merchandise categories generated positive same-store sales during the quarter. Highlights for full-line stores and Nordstrom Direct combined included Fashion Jewelry, Women’s Better Apparel and Shoes. The Mid-Atlantic and the South regions were the top-performing geographic areas for full-line stores relative to the third quarter of 2008, while the Mid-Atlantic and Northeast regions achieved the largest sequential improvements over the second quarter of 2009. During the third quarter, the company opened one Nordstrom full-line store in Cincinnati.
   
Nordstrom Rack had positive performance with a same-store sales increase of 3.0% in the third quarter compared with the same period in fiscal 2008. This is the third consecutive quarter of positive same-store sales results. During the third quarter, the company opened six Nordstrom Rack stores.

Gross profit, as a percentage of net sales, increased approximately 90 basis points compared with last year’s third quarter. The improvement in merchandise margin, as a percentage of net sales, was partially offset by the impact of an increase in performance-related expense included in buying and occupancy costs. The company continued to carefully manage inventory levels, with quarter-end inventory per square foot declining 10.7% from the same period in the prior year. At the same time, the company had better-than-expected sales improvement, with sales per square foot declining 1.2% for the quarter. The company believes it is well positioned to have a solid flow of fresh merchandise throughout the holiday season.

Retail selling, general and administrative expenses increased $10 million compared with last year’s third quarter. While fixed expenses decreased, they were more than offset by an increase in performance-related expense due to higher than planned sales and earnings results. Retail selling, general and administrative expenses also were impacted by an additional $12 million from stores opened since the third quarter of 2008. The company opened 4 full-line stores and 13 Nordstrom Rack stores since the third quarter of 2008, increasing retail square footage by 1.0 million, or 4.5%.

Credit selling, general, and administrative expenses increased $4 million compared with last year's third quarter. Based on current credit trends, the company increased its reserve for bad debt by $6 million. This was partially offset by $2 million in improvements in Operational and Marketing expenses.

CAPITAL INVESTMENT AND EXPANSION UPDATE

The company’s capital expenditures, net of property incentives, are expected to total between $325 and $375 million in fiscal year 2010, compared to approximately $280 million in fiscal year 2009. The company expects to open 3 full-line stores and approximately 15 Nordstrom Rack stores in 2010. In 2011, the company expects to open 2-3 full-line stores and 13-15 Nordstrom Rack stores.