Nordstrom reported a drop in first-quarter same-store sales and cut profit expectations for the year.

The retailer reported earnings per diluted share of 26 cents a share for the first quarter ended April 30, 2016. Total Company net sales increased 2.5 percent while comparable sales decreased 1.7 percent, compared with the same period last year.

First quarter earnings were below the Company’s expectations, primarily driven by lower than planned sales and higher markdowns to better align inventory to current trends. First quarter results included a reduction in earnings per diluted share of $0.10 related to higher credit chargeback expenses associated with an industry change in liability rules effective October 2015 in addition to severance charges related to the realignment of corporate support functions.

“Our first quarter results were impacted by lower than expected sales. In response we have made further adjustments to our inventory and expense plans,” said Blake Nordstrom, co-president, Nordstrom, Inc. “As the pace of change in retail continues to accelerate, we remain committed to serving customers by taking steps that will continue to meet their expectations while driving profitable growth.”

FIRST QUARTER SUMMARY

  •     First quarter net earnings were $46 million and earnings before interest and taxes (EBIT) were $106 million, or 3.3 percent of net sales, compared with net earnings of $128 million and EBIT of $245 million, or 7.9 percent of net sales, during the same period in fiscal 2015.
  •         Retail EBIT decreased $107 million compared with the same quarter last year, reflecting increased markdowns and higher credit chargeback expenses in addition to planned fulfillment and technology costs supporting the Company’s growth initiatives.
  •         Credit EBIT decreased $32 million related to an expected reduction in net revenue from the revenue sharing program agreement with TD Bank (“TD”) beginning in October 2015.
  •     Total Company net sales of $3.2 billion for the first quarter increased 2.5 percent compared with net sales of $3.1 billion during the same period in fiscal 2015. Total Company comparable sales for the first quarter decreased 1.7 percent.
  •     Full-price net sales, which consist of U.S. full-line stores and Nordstrom.com, combined with Canada and Trunk Club, decreased 2.2 percent and comparable sales decreased 4.3 percent.
  •     Across U.S. full-line stores and Nordstrom.com, the top-performing merchandise category was Beauty. The younger customer-focused departments in Women’s Apparel continued to reflect strength with positive comparable sales increases. The Midwest was the top-performing full-price geographic region.
  •     Off-price net sales, which consist of Nordstrom Rack stores and Nordstromrack.com/HauteLook, increased 11.8 percent and comparable sales increased 4.6 percent. The East was the top-performing off-price geographic region.
  •     Gross profit, as a percentage of net sales, of 34.2 percent decreased 164 basis points compared with the same period in fiscal 2015, primarily due to higher markdowns to better align inventory to current trends. While sales trends were below expectations, we ended the period with inventory growth of 5.4 percent and net sales growth of 2.5 percent resulting in a negative spread of 3 percent, which represents an improvement over the negative spread of 7 percent in the fourth quarter of 2015.
  •     Selling, general and administrative expenses, as a percentage of net sales, of 32.7 percent increased 149 basis points compared with the same period in fiscal 2015, primarily due to higher credit chargebacks and severance charges in addition to planned fulfillment and technology costs supporting the Company’s growth initiatives. With the roll-out of an upgraded point-of-sale system completed in February, the Company anticipates the impact of credit chargebacks to substantially lessen in the second quarter.
  •     The Nordstrom Rewards loyalty program continued to contribute to overall results, with members shopping more frequently and spending more on average than non-members. The Company opened approximately 240,000 new accounts in the first quarter. With 4.7 million active members, sales from members represented 38 percent of sales. To build on the success of its loyalty program, the Company plans to expand its program with a tender-neutral offering in the second quarter.
  •     During the first quarter, the Company repurchased 1.0 million shares of its common stock for $50 million. A total of $761 million remains available under its existing share repurchase board authorizations. The actual number, price, manner and timing of future share repurchases, if any, will be subject to market and economic conditions and applicable Securities and Exchange Commission (“SEC”) rules.
  •     Return on invested capital (ROIC) for the 12 fiscal months ended April 30, 2016 was 10.0 percent compared with 12.2 percent in the prior 12-month period. This decrease was primarily due to reduced earnings. A reconciliation of this non-GAAP financial measure to the closest GAAP measure is included below.

EXPANSION UPDATE

To date in fiscal 2016, the Company relocated one full-line store and opened six Nordstrom Rack stores. The Company opened the following stores in the first quarter of 2016:

FISCAL YEAR 2016 OUTLOOK

The Company updated its annual earnings per diluted share expectations, reflecting its updated sales outlook and expectations for a continued promotional environment. Nordstrom’s expectations for fiscal 2016 are as follows:

The Anniversary Sale, which historically is the Company’s largest sale event of the year, is planned to start one week later in July relative to last year. This event shift is expected to result in a less favorable comparison in the second quarter, offset by a favorable comparison in the third quarter. Comparable sales are expected to be impacted by approximately 200 basis points in the second quarter and approximately 250 basis points in the third quarter.