Nordstrom Q2 Earnings Dip on Calendar Shift

The Anniversary Sale is historically the Company’s largest sale of the year and started one week later in July relative to last year. The Company expected the event shift to cause an unfavorable comparison in the second quarter, offset by a favorable impact in the third quarter. Second quarter sales and Anniversary Sale results through the end of July exceeded Company expectations. Second quarter same-store sales increased 4.5 percent compared with the same period in fiscal 2011. Net sales in the second quarter were $2.92 billion, an increase of 7.4 percent compared with net sales of $2.72 billion during the same period in fiscal 2011.

SECOND QUARTER SUMMARY

Nordstrom’s second quarter performance reflected top-line strength consistent with the Company’s growth strategy to elevate the customer experience and innovate through ongoing investments.

    Nordstrom net sales, which include results from the full-line and Direct businesses, increased $139 million, or 6.1 percent, compared with the same period in fiscal 2011. Same-store sales increased 4.9 percent. Top-performing merchandise categories included Handbags, Women’s Shoes and Cosmetics.
    Full-line same-store sales increased 1.1 percent compared with the same period in fiscal 2011. The South and Midwest regions were the top-performing geographic areas relative to the second quarter of 2011.
    The Direct channel continued to show strong sales growth with an increase of 40 percent, significantly outpacing the overall Company performance and reflecting the Company’s ongoing initiatives in e-commerce.
    Nordstrom Rack, which opened six stores during the first half of the year, demonstrated continued sales growth in the second quarter with increases in net sales of 18.9 percent and same-store sales of 7.7 percent.
    Gross profit, as a percentage of net sales, decreased 98 basis points compared with last year’s second quarter. The decline primarily reflected a combination of the Anniversary Sale shift, enhancements made to the Fashion Rewards program and a reduction in shipping revenue from the launch of free shipping and free returns online that was introduced in the third quarter of 2011.
    Retail selling, general and administrative expenses, as a percentage of net sales, increased 61 basis points compared with last year’s second quarter. The increase was primarily due to the Company’s investments in various e-commerce and technology initiatives to improve the customer experience in stores and online.
    The Credit segment continued to demonstrate improving trends in its overall performance. Customer payment rates continued to improve. Annualized net write-offs were 4.8 percent of average credit card receivables during the quarter, down from 7.2 percent in the second quarter of 2011. Delinquencies as a percentage of credit card receivables at the end of the second quarter were 1.9 percent, down from 2.7 percent at the end of the second quarter of 2011.
    Earnings before interest and taxes were $290 million, compared with $320 million in last year’s second quarter, with the decline due to the Anniversary event timing shift and the Company’s planned investments in e-commerce and technology.
    Return on invested capital (ROIC) for the 12 months ended July 28, 2012, was 12.7 percent, compared with 13.8 percent achieved in the prior 12-month period, exceeding our expectations. The Company anticipates that ROIC for fiscal 2012 will exceed ROIC for fiscal 2011. A reconciliation of this non-GAAP financial measure to the closest GAAP measure is included below.
    During the quarter, the Company repurchased approximately 7.5 million of its shares for a total of $373 million. A total of $696 million remains under its existing share repurchase authorization. The actual number and timing of future share repurchases, if any, will be subject to market and economic conditions and applicable Securities and Exchange Commission rules.

EXPANSION UPDATE

Given the strong performance of the Nordstrom Rack business and availability of quality locations, the Company is planning to further accelerate the expansion of this business. Over the last four years, Nordstrom has more than doubled the number of Nordstrom Rack locations to its current total of 110 stores. Its initial plan for 15 store openings in 2012 remains and will increase to 24 openings in 2013. The Company plans to have over 230 Rack stores by the end of 2016.

The Company earlier announced a location for its first full-line store in New York City, with the opening expected in 2018.