Nordstrom, Inc. (NYSE: JWN) today reported third quarter results on an operational basis that exceeded expectations, reflecting continued strength in inventory and expense execution. Total Company net sales for the third quarter increased 7.2 percent and comparable sales increased 2.4 percent, compared with the same period last year. This includes a favorable comparison resulting from one week of the Anniversary Sale, historically the Company’s largest event of the year, shifting into the third quarter. Combined second and third quarter comparable sales, which removes the impact of the event shift, increased 0.4 percent compared with the same period last year.
“We’ve made considerable changes in the way we operate to improve the customer experience while increasing our productivity,” said Blake Nordstrom, co-president, Nordstrom, Inc. “We are particularly proud of our team’s efforts to align inventories and improve our operating efficiencies. These outcomes have positively impacted our operating results.”
Third quarter results included a non-cash goodwill impairment of $197 million related to Trunk Club, which the Company acquired in 2014. While this business continues to deliver outsized top-line growth, current expectations for future growth and profitability are lower than initial estimates. To further improve the customer experience and better position Trunk Club’s business for profitable growth, the Company is making a number of operational changes.
The Company reported loss per diluted share for the third quarter ended October 29, 2016 of $0.06 and revised its fiscal year 2016 outlook to $1.70 to $1.80. Excluding the impairment charge, the Company reported third quarter adjusted earnings per diluted share of $0.84 and raised its fiscal year 2016 outlook for adjusted earnings per diluted share to $2.85 to $2.95 to incorporate third quarter results.
THIRD QUARTER SUMMARY
• Third quarter net loss was $10 million and earnings before interest and taxes (EBIT) was $55 million, or 1.6 percent of net sales, compared with net earnings of $81 million and EBIT of $155 million, or 4.8 percent of net sales, during the same period in fiscal 2015. ? Retail EBIT decreased $126 million compared with the same quarter last year due to the impairment charge of $197 million, partially offset by continued sales growth.
* Credit EBIT increased $26 million, which primarily reflected transaction costs incurred in 2015 associated with the sale of the credit card portfolio.
• Total Company net sales of $3.5 billion for the third quarter increased 7.2 percent compared with net sales of $3.2 billion during the same period in fiscal 2015. Total Company comparable sales for the third quarter increased 2.4 percent. ? In the Nordstrom brand, including U.S. and Canada full-line stores and Nordstrom.com, net sales when combined with Trunk Club, increased 2.4 percent and comparable sales increased 0.9 percent.
* Across U.S. full-line stores and Nordstrom.com, the top-performing merchandise categories were Women’s Apparel and Men’s Apparel. The younger customer-focused departments in Women’s Apparel continued to outperform, reflecting strength in denim and collaborations with new and emerging limited distribution brands. The West was the top-performing geographic region.
* In the Nordstrom Rack brand, which consists of Nordstrom Rack stores and Nordstromrack.com/HauteLook, net sales increased 10.1 percent and comparable sales increased 3.9 percent. The East was the top-performing geographic region.
• Retail gross profit, as a percentage of net sales, of 34.8 percent increased 93 basis points compared with the same period in fiscal 2015. This reflected strong inventory execution, which resulted in net sales growth outpacing inventory growth, in addition to leverage of buying and occupancy costs.
• Selling, general and administrative expenses, as a percentage of net sales, of 29.6 percent decreased 218 basis points compared with the same period in fiscal 2015. This was primarily due to transaction costs incurred in 2015 associated with the sale of the credit card portfolio in addition to the shift in sales volume from the Anniversary Sale resulting in expense leverage. Expense performance exceeded the Company’s expectations by approximately 70 basis points, reflecting ongoing progress to improve operational efficiencies.
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