Nordstrom Inc. reported a loss in the first quarter, as expected, while showing continued strength in online sales. The retailer said sequential improvement in sales trends of more than 700 basis points relative to the fourth quarter, but overall sales were down 13 percent versus the 2019 first quarter.

The company reported a loss before interest and taxes of $85 million, supported by improved sales trends and continued benefits from resetting its cost structure. Loss per diluted share of $1.05 included a debt refinancing charge of $0.41 per share. Excluding the charge, the loss came to 64 cents compared to Wall Street’s consensus target of 57 cents.

For the first quarter ended May 1, 2021, net sales increased 44 percent to $2.92 billion from the same period in fiscal 2020 and decreased 13 percent from the same period in fiscal 2019, representing a sequential improvement of 720 basis points relative to the fourth quarter of fiscal 2020. Sales were in line with Wall Street’s consensus target.

Sales trends reflected broad-based improvement across Nordstrom and Nordstrom Rack, in stores and online, and across regions and merchandise categories. During the quarter, Nordstrom expanded the rollout of its market strategy to its top 20 markets, which comprise approximately 75 percent of sales.

“We are encouraged by sales trends both in our stores and our digital business, supported by an improving consumer environment and strong execution,” said Erik Nordstrom, CEO, Nordstrom, Inc. “Looking ahead to summer, we are well-positioned to continue to capitalize on pent-up demand, and are further strengthening our position as we execute on our strategy to win in our most important markets, broaden the reach of Nordstrom Rack and increase our digital velocity.”

Sales benefited from improving trends in categories such as occasion-based apparel, handbags, sunglasses, and swimwear, while home, active, designer, and beauty categories continued to perform well. The company expanded its assortment in Nordstrom and Nordstrom Rack while reducing its inventory overage from the end of the fourth quarter of fiscal 2020 faster than expected. The company is balancing inventory levels with sales while managing receipt flows to mitigate potential supply chain disruptions as the year progresses.

“We are continuing to serve our long-time and new customers on their terms, with the highly relevant and current product, more choices and better service, allowing us to deliver on our commitment to getting ‘closer to you’,” said Pete Nordstrom, president and chief brand officer of Nordstrom, Inc. “With the efforts of our incredible employees and close partnership with our vendors, we have aligned inventories with current sales trends and are energized by the momentum we’re seeing in the business and the plans we have for a strong anniversary sale.”

As previously announced, Nordstrom further improved its financial position in April by redeeming $600 million of 8.75 percent secured notes and issuing lower-coupon unsecured notes due in 2024 and 2031. As a result of these transactions, the company’s bond portfolio is once again entirely unsecured. These transactions will reduce annualized interest expense by approximately $30 million, beginning in the second quarter of fiscal 2021.

First Quarter 2021 Summary

  • Total company net sales increased 44 percent compared with the same period in fiscal 2020, during which stores were temporarily closed for approximately half of the quarter. Sales decreased 13 percent relative to the same period in fiscal 2019 and marked a sequential improvement of 720 basis points relative to the fourth quarter of 2020.
  • For the Nordstrom brand, net sales increased 37 percent compared with the same period in fiscal 2020 and decreased 13 percent compared with the same period in fiscal 2019.
  • For the Nordstrom Rack brand, net sales increased 59 percent compared with the same period in fiscal 2020 and decreased 13 percent compared with the same period in fiscal 2019.
  • Digital sales increased 23 percent compared with the same period in fiscal 2020 and increased 28 percent compared with the same period in fiscal 2019. Digital sales represented 46 percent of total sales during the quarter.
  • Gross profit, as a percentage of net sales, of 31 percent increased approximately 2,000 basis points compared with the same period in fiscal 2020, primarily due to lower markdowns and leverage from higher net sales volume. Gross profit, as a percentage of net sales, decreased 260 basis points compared with the same period in fiscal 2019 as a result of deleveraging on lower sales and lower merchandise margins, partially offset by permanent reductions in buying and occupancy costs.
  • Ending inventory decreased 2 percent compared with the same period in fiscal 2019, versus a 13 percent decrease in sales. The change in inventory levels versus 2019 includes an approximately 700 basis point impact resulting from the acceleration of vendor shipments to support sales trends and mitigate potential supply chain backlogs in the second quarter.
  • Selling, general and administrative (“SG&A”) expenses, as a percent of net sales, of 37 percent decreased approximately 1,900 basis points compared with the same period in fiscal 2020 as a result of $250 million in charges associated with the impact of COVID-19 in 2020, leverage on higher sales and the continued benefit of permanent reductions in overhead expenses of approximately 15 percent. SG&A expenses, as a percentage of net sales, increased 280 basis points compared with the same period in fiscal 2019 as a result of COVID-19 related labor and freight cost pressures.
  • Loss before interest and taxes of $85 million decreased from a loss of $813 million during the same period in fiscal 2020 primarily due to higher sales volume as well as the decrease in SG&A expense. Last year’s loss included $280 million in charges related to COVID-19.
  • Interest expense, net of $137 million, increased from $34 million during the same period in fiscal 2020 and included a pretax debt refinancing charge of $88 million related to the “make-whole” premium and unamortized issue costs associated with the redemption of the 2025 secured notes.
  • Income tax benefit of $56 million, or 25 percent of the pretax loss, compared with the income tax benefit of $326 million, or 38 percent of the pretax loss, 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”).
  • First-quarter net loss of $166 million, which included an after-tax debt refinancing charge of $64 million, decreased from a net loss of $521 million during the same period in fiscal 2020, which included after-tax charges of $173 million related to COVID-19.
  • The company ended the first quarter with $977 million in available liquidity, including $377 million in cash.

Fiscal Year 2021 Outlook
The company has reaffirmed the following financial expectations for fiscal 2021:

  • Revenue, including retail sales and credit card revenues, is expected to grow more than 25 percent;
  • Earnings before interest and taxes (EBIT) margin is expected to be approximately 3 percent of sales;
  • Income tax rate is expected to be approximately 27 percent;
  • Leverage ratio is expected to be approximately 3x by year-end; and
  • For the first half of the year, EBIT is expected to be approximately breakeven, reflecting approximately 45 percent of total year sales.

Photo courtesy Nordstrom