Nordstrom, Inc. lowered its guidance for the year due to the impact of hurricanes during the third quarter.

The estimated reduction in earnings from several hurricanes affecting stores in Puerto Rico, Florida, and Texas was approximately 4 cents a share in the quarter. Total company net sales increased 2.0 percent and comparable sales decreased 0.9 percent, compared with the same quarter last year. The estimated lost sales impact from the hurricanes was approximately $20 million, or 60 basis points.

Nordstrom continued its progress in executing its strategy to improve the customer experience:

  • With a test and learn approach in finding innovative ways to improve speed, convenience and personalization for customers, the company launched Nordstrom Local, its latest retail concept where customers can shop and access Nordstrom services in a convenient, central location.
  • In executing its digital strategy, the company delivered online sales growth on a year-to-date basis of 14 percent at Nordstrom.com and 26 percent at Nordstromrack.com/HauteLook.
  • The company strengthened its presence in top markets through two full-line store relocations in Southern California, a new full-line store in Toronto, Canada, and 11 new Nordstrom Rack stores plus one relocation. These stores feature the company’s latest design concepts and digital experiences.
  • As a result of the company’s ongoing efforts to provide newness and limited-distribution product to customers, Nordstrom proprietary labels continued to outperform the company average.
  • The Nordstrom Rewards loyalty program continues to play an important role in reaching new customers and strengthening existing customer relationships. The company has 9.9 million active Rewards customers in the U.S. and Canada, up 39 percent, from 7.1 million a year ago. Sales from Nordstrom Rewards customers represented 51 percent of third quarter sales, compared with 45 percent a year ago.

THIRD QUARTER SUMMARY

  • Third quarter net earnings were $114 million and earnings before interest and taxes (EBIT) were $208 million, or 5.9 percent of net sales, compared with net loss of $10 million and EBIT of $55 million, or 1.6 percent of net sales, during the same period in fiscal 2016.
  • Retail EBIT increased $137 million compared with the same quarter last year, primarily reflecting a goodwill impairment charge of $197 million in 2016.
  • Credit EBIT increased $16 million through the strategic partnership with TD Bank, primarily due to credit card revenues growth of 25 percent.
  • Total company net sales of $3.5 billion for the third quarter increased 2.0 percent compared with the same period in fiscal 2016. Total company comparable sales for the third quarter decreased 0.9 percent compared with the same quarter last year.
  • In the Nordstrom brand, including U.S. and Canada full-line stores and Nordstrom.com, net sales when combined with Trunk Club, decreased 1.2 percent and comparable sales decreased 1.9 percent. The top-ranking merchandise categories were Men’s Apparel and Kids’ Apparel. The West was the top-ranking U.S. geographic region.
  • In the Nordstrom Rack brand, which consists of Nordstrom Rack stores and Nordstromrack.com/HauteLook, net sales increased 5.5 percent and comparable sales increased 0.8 percent. The West was the top-ranking geographic region.Retail gross profit, as a percentage of net sales, of 34.7 percent decreased 12 basis points compared with the same period in fiscal 2016. This primarily reflected higher occupancy expenses related to new store growth for Nordstrom Rack and Canada. Net sales growth of 2 percent exceeded inventory growth of 1 percent.
  • Selling, general and administrative expenses, as a percentage of net sales, of 31.2 percent increased 161 basis points compared with the same period in fiscal 2016. This primarily reflected higher technology and supply chain expenses associated with the company’s growth initiatives.
  • Return on invested capital (“ROIC”) for the 12 fiscal months ended October 28, 2017 was 10.7 percent compared with 7.2 percent in the prior 12-month period. Results for the prior period were negatively impacted by approximately 340 basis points due to the Trunk Club non-cash goodwill impairment charge in the third quarter of 2016.

Full-Year Outlook

 

The company’s outlook includes the following considerations:

  • The full-year impact from several hurricanes that occurred in the third quarter is estimated to impact sales by $26 million, EBIT by $17 million and EPS by $0.06.
  • The 53rd week is expected to add approximately $200 million to total net sales and approximately $0.02 to $0.03 to earnings per diluted share. The 53rd week is not included in comparable sales calculations.
  • The Anniversary Sale, historically the company’s largest event of the year, spanned across the second and third quarters, consistent with the timing in fiscal 2016.
  • The outlook assumptions for Retail EBIT when compared with fiscal 2016 include increased occupancy expenses related to new stores (Nordstrom Rack, Canada and Manhattan flagship men’s store) in addition to higher supply chain and technology costs.
  • Retail EBIT in fiscal 2016 included the following non-operational items: higher credit chargeback expenses associated with an industry change in liability rules and severance charges totaling $30 million, or $0.10 in the first quarter; an impairment charge related to Trunk Club of $197 million in the third quarter; and a non-operational legal settlement gain of $22 million, or $0.10, in the fourth quarter.
  • The outlook assumptions for Credit EBIT when compared with fiscal 2016 incorporate higher credit card revenues including a reduction in amortization expenses of $18 million related to the sale of the credit card portfolio.
  • The income tax rate is estimated to be approximately in line with the year-to-date rate for fiscal 2017.
  • Diluted shares outstanding, excluding any future share repurchases, are estimated at 169 million for fiscal 2017.