Nordstrom Inc. reported sales decreased 16 percent to $3 billion in the third quarter. Net earnings were down 57.9 percent in the period but came in well above Wall Street’s targets. Top-performing merchandise categories included active, home, beauty, and designer.
In a statement, the department store operator said third-quarter results reflected a sequential improvement in sales and earnings relative to the prior quarter. The company generated earnings before interest and taxes (EBIT) of more than $100 million, supported by improved merchandise margin trends and benefits from resetting its cost structure.
Earnings per diluted share of 34 cents included an income tax benefit of $0.12 related to the CARES Act and compared to Wall Street’s consensus estimate calling for a loss of 4 cents a share. Sales of $3.0 billion were short of Wall Street’s consensus target of $3.2 billion.
For the third quarter ended October 31, 2020, net sales decreased 16 percent from last year and included a positive impact of approximately 10 percentage points due to the shift of the Nordstrom Anniversary Sale from the second quarter to the third quarter this year. Digital sales of $1.6 billion accounted for 54 percent of Nordstrom’s business.
“Our ability to significantly strengthen our financial flexibility early in the pandemic was key to delivering operating profitability of more than $100 million and cash flow of more than $150 million in the third quarter,” said Erik Nordstrom, chief executive officer of Nordstrom, Inc. “We also unlocked new ways to better serve customers on their terms with greater convenience and connection, including the expansion of our online order pickup services to nearly 350 locations across both Nordstrom and Nordstrom Racks.”
Positioning For Market Share Gains
The company continues to scale its market strategy to increase customer engagement, drive share gains and optimize inventory efficiencies. In October, Nordstrom rolled out its market strategy to five additional markets, scaling to 10 of its top markets, which account for more than half of sales. In these markets, customers have access to up to seven times more merchandise selection with two-day delivery or next-day pickup. In addition, customers can pick up orders at Nordstrom.com, Nordstromrack.com and HauteLook.com and at all Nordstrom and Nordstrom Rack stores in the U.S.
The company is continuing to leverage digital and physical capabilities to fuel the growth of Nordstrom Rack, which represents the biggest source of new customers. In October, the company further integrated its store and online inventory which resulted in 30,000 customer choices added to online merchandise selection, more than 10 percent of online orders picked up at Nordstrom Rack stores and approximately 25 percent of online orders fulfilled at stores.
Strong Anniversary Sale Execution
Strong customer response to Nordstrom’s Anniversary Sale drove record sell-through rates which contributed to profitability. During the event, Nordy Club loyalty customers accounted for approximately 80 percent of sales. In addition, digital sales represented 60 percent of the event with approximately one-third of Nordstrom.com units fulfilled from stores to enable faster delivery.
Positive Earnings and Cash Flow Generation
Nordstrom delivered sequential improvement in merchandise margin trends relative to the prior quarter, reflecting strong sell-through and regular price selling trends. Nordstrom also realized year-to-date cash savings of approximately $550 million, net of COVID-19 related charges, across expenses, capital expenditures and working capital. This included $330 million in realized expense savings primarily from resetting its cost structure.
Third-quarter operating cash flow of $155 million exceeded expectations enabling Nordstrom to pay down an additional $300 million on its revolving line of credit. Nordstrom further strengthened its financial flexibility, ending the quarter with $1.5 billion in liquidity including approximately $900 million in cash.
“We are thankful for our team’s dedication to serving customers in new and differentiated ways,” said Pete Nordstrom, president and chief brand officer of Nordstrom, Inc. “By working with our vendor partners, we have made quick adjustments to ensure a great holiday offering for our customers. We are encouraged by the positive momentum and expect continued progress in the fourth quarter and into 2021.”
Third Quarter 2020 Summary
- Total company sales decreased 16 percent, which included an approximately 10-percentage point impact from the Anniversary Sale event shift. Top-performing merchandise categories included active, home, beauty, and designer.
- In Nordstrom’s full-price business, net sales decreased 7 percent. Excluding the Anniversary Sale event shift impact, sales decreased in the mid-twenties percent range.
- In Nordstrom Rack off-price business, net sales decreased 32 percent compared with the same period in fiscal 2019.
- Digital sales of $1.6 billion represented 54 percent of total sales and increased 37 percent. Excluding the Anniversary Sale event shift impact, digital sales increased in the mid-teens percent range in the third quarter consistent with trends in the first half of the year.
- Gross profit, as a percentage of net sales of 32.8 percent, decreased 150 basis points from the same period in fiscal 2019 primarily due to the shift of the Anniversary Sale in addition to deleverage from lower sales volume. Merchandise margins exceeded company expectations and reflected significant improvement relative to the prior quarter.
- Ending inventory decreased 27 percent from last year. Excluding the Anniversary Sale event shift impact, the decrease in inventory was in-line with the decrease in sales for the second consecutive quarter.
- Selling, general and administrative (“SG&A”) expenses, as a percentage of net sales, of 32.1 percent increased 30 basis points compared with the same period in fiscal 2019. The decrease in SG&A expense of 15 percent from the prior year exceeded company expectations and primarily reflected continued permanent reductions in overhead costs of approximately 20 percent from last year.
- Earnings before interest and taxes of $106 million decreased from earnings before interest and taxes (“EBIT”) of $193 million during the same period in fiscal 2019 primarily due to lower sales volume, partially offset by realized expense savings.
- Income tax expense of $5 million, or 8 percent of pretax earnings, included a tax benefit of $19 million associated with the CARES Act.
- Third-quarter net income of $53 million, which included an income tax benefit of $19 million associated with the CARES Act, decreased from net earnings of $126 million during the same period in fiscal 2019.
Photo courtesy Nordstrom