Nordstrom Reports First Quarter 2013 Earnings

Nordstrom Reports First Quarter 2013 Earnings

Affirms Full-Year EPS Guidance

SEATTLE--(BUSINESS WIRE)-- Nordstrom, Inc. (NYS: JWN) today reported earnings per diluted share of $0.73 for the first quarter ended May 4, 2013, representing a 4.3 percent increase from $0.70 for the same quarter last year. Net earnings were $145 million compared with $149 million for the same quarter last year.


Total Company net sales of $2.7 billion for the first quarter increased 4.8 percent compared with net sales of $2.5 billion during the same period in fiscal 2012. Total Company same-store sales increased 2.7 percent compared with the same period in fiscal 2012, on top of last year's same-store sales increase of 8.5 percent.

First quarter performance was consistent with the lower end of the Company's expectations as lower than planned sales volume was mitigated by the Company's management of inventory and expenses. While in the first two months of the quarter the Company experienced particularly soft sales trends in seasonal merchandise and geographically in the Northeast, Mid-Atlantic and Midwest regions, overall sales trends showed improvement in April.

The Company continues to expect annual earnings per diluted share consistent with the previous outlook of $3.65 to $3.80. This reflects full-year same-store sales increases of 3 to 5 percent and incorporates the performance of the first quarter. It also includes the impact of share repurchases in the first quarter, which is expected to increase earnings per diluted share by approximately $0.05.

FIRST QUARTER SUMMARY

  • Nordstrom same-store sales, which consist of the full-line and Direct businesses, increased 3.1 percent. Top-performing merchandise categories included Cosmetics, Women's Apparel and Handbags. Women's Apparel outpaced the multi-channel average for the third consecutive quarter.

  • Full-line same-store sales were flat compared with last year's same-store sales increase of 5.6 percent. The Northern California and Southwest regions were the top-performing geographic areas relative to the first quarter of 2012.

  • Direct continued to generate strong sales growth with an increase of 25 percent in the first quarter on top of last year's increase of 44 percent.

  • Nordstrom Rack net sales increased $58 million, or 10 percent, compared with the same period in fiscal 2012, reflecting 16 new store openings since the first quarter of fiscal 2012. Same-store sales increased 0.8 percent for the Rack on top of last year's same-store sales increase of 6.8 percent.

  • Gross profit, as a percentage of net sales, decreased 50 basis points compared with the same period in fiscal 2012. The decrease reflected higher occupancy costs related to the accelerated Rack store expansion, combined with lower than planned sales volume. The decrease was also due to higher expenses associated with the growth in the Fashion Rewards program.

  • Ending inventory per square foot increased 5.9 percent compared with the same period in fiscal 2012. This outpaced sales per square foot growth of 2.3 percent for the quarter and was attributable to the planned investment in pack and hold inventory at Nordstrom Rack.

  • Selling, general and administrative expenses, as a percentage of net sales, increased 14 basis points compared with the same period in fiscal 2012. The increase included incremental costs related to the planned entry into Canada and accelerated Rack store expansion, coupled with a $10 million reduction in the reserve for bad debt taken in the first quarter of 2012. The Company continued to invest in technology and e-commerce to support its accelerated online growth.

  • Earnings before interest and taxes of $275 million decreased 1.8 percent compared to $280 million for the same quarter last year.

  • During the quarter, the Company repurchased 3.0 million shares for $166 million. A total of $1.0 billion remains under existing share repurchase board authorizations. The actual number and timing of future share repurchases, if any, will be subject to market and economic conditions and applicable Securities and Exchange Commission rules.

  • Return on invested capital (ROIC) for the 12 months ended May 4, 2013 of 14.0 percent increased from 13.1 percent in the prior 12-month period. A reconciliation of this non-GAAP financial measure to the closest GAAP measure is included below.

FINANCIAL STATEMENT RECLASSIFICATIONS

Beginning in the first quarter of 2013, Nordstrom reclassified amounts in its financial statements to reflect the way the Company views and measures its business. As the Company continues to execute its long-term growth strategy and make investments across operating segments, aligning expenses with the associated benefits enhances the ability to evaluate segment performance. These reclassifications did not impact net earnings, earnings per share, financial position or cash flows.

The Company reclassified Fashion Rewards expenses and technology expenses between our Retail Business and Credit segment. In addition, the Company previously presented bad debt expense associated with finance charges and fees as part of selling, general and administrative expenses. The Company now presents this as a reduction of credit card revenue. For additional detail, see the Form 8-K filed on May 16, 2013 and the Investor Relations section of the Company's corporate website at http://investor.nordstrom.com.

EXPANSION UPDATE

Nordstrom opened the following stores in the first quarter of 2013:

Location

Store Name

Square

Footage

(000's)

Timing

Nordstrom Rack

Boston, Massachusetts

The Newbry

39

March 14

Upland, California

Colonies Crossroads

35

March 14

Ann Arbor, Michigan

Arborland Center

30

April 18

Lake Orion, Michigan

Baldwin Commons

35

April 18

Washington, D.C.

L Street

34

April 18

Additionally, today the Company opened Rack stores in Alabama, Maine and Maryland.

FISCAL YEAR 2013 OUTLOOK

The Company's earnings per diluted share expectations for fiscal 2013 are unchanged. The Company's expectations for fiscal 2013, shown in comparison to the reclassified 53-week fiscal 2012 where applicable, are as follows:

Prior Outlook

Current Outlook

Total sales

4.5 to 6.5 percent increase

4 to 6 percent increase

Same-store sales

3.5 to 5.5 percent increase

3 to 5 percent increase

Credit card revenues1

$0 to $5 million increase

$0 to $5 million increase

Gross profit (%)

10 to 30 basis point decrease

10 to 30 basis point decrease

Selling, general and administrative expenses (%)1

0 to 10 basis point decrease

0 to 10 basis point decrease

Interest expense, net

$5 million decrease

$5 million decrease

Effective tax rate

39.0 percent

39.0 percent

Earnings per diluted share, excluding the impact of any future share repurchases

$3.65 to $3.80

$3.65 to $3.80

Diluted shares outstanding

Approximately 203 million

Approximately 200 million

1 Impacted by financial statement reclassifications as described above. These reclassifications did not result in a change to the current outlook relative to the prior outlook.

The 53rd week in fiscal 2012 creates a timing shift in the 4-5-4 calendar for fiscal 2013 that is expected to impact comparisons of performance to the prior year. Same-store sales are compared with the first 52 weeks of 2012. In 2013, the Anniversary Sale, which is the Company's largest sale event of the year, will occur in the second quarter, while in fiscal 2012 it overlapped the second and third quarters.

The Company is providing the following view of quarterly trends, relative to annual fiscal 2013 expectations:

Annual Fiscal

2013 Guidance

Compared to Annual Fiscal 2013 Guidance Range

Second Quarter 2013

Second Half 2013

Same-store sales

3 to 5 percent increase

Above

Below

Earnings per diluted share

3 to 7 percent increase

Above

Below

CONFERENCE CALL INFORMATION

The Company's senior management will host a conference call to discuss first quarter 2013 results and 2013 outlook at 4:45 p.m. Eastern Daylight Time today. To listen to the live call online and view the speakers' slides and Performance Summary document, visit the Investor Relations section of the Company's corporate website at http://investor.nordstrom.com. An archived webcast with the speakers' slides and Performance Summary document will be available in the Earnings section for one year. Interested parties may also dial 415-228-4850 (passcode: NORD). A telephone replay will be available beginning approximately one hour after the conclusion of the call by dialing 203-369-0544 (a passcode is not required) until the close of business on May 23, 2013.

ABOUT NORDSTROM

Nordstrom, Inc. is one of the nation's leading fashion specialty retailers. Founded in 1901 as a shoe store in Seattle, today Nordstrom operates 248 stores in 33 states, including 117 full-line stores, 127 Nordstrom Racks, two Jeffrey boutiques, one treasure&bond store and one clearance store. Nordstrom also serves customers through Nordstrom.com and through its catalogs. Additionally, the Company operates in the online private sale marketplace through its subsidiary HauteLook. Nordstrom, Inc.'s common stock is publicly traded on the NYSE under the symbol JWN.

Certain statements in this news release contain or may suggest "forward-looking" information (as defined in the Private Securities Litigation Reform Act of 1995) that involve risks and uncertainties, including, but not limited to, anticipated financial outlook for the fiscal year ending February 1, 2014, anticipated annual same-store sales rate, anticipated Return on Invested Capital, anticipated store openings and trends in our operations. Such statements are based upon the current beliefs and expectations of the company's management and are subject to significant risks and uncertainties. Actual future results may differ materially from historical results or current expectations depending upon factors including, but not limited to: successful execution of our growth strategy, including expansion into new markets, technological investments and acquisitions, our ability to realize the anticipated benefits from such growth initiatives, and the timely completion of construction associated with newly planned stores, relocations and remodels, all of which may be impacted by the financial health of third parties; our ability to manage the transformation of our business/financial model as we increase our investments in growth opportunities, including our online business and our ability to manage related organizational changes; our ability to maintain relationships with our employees and to effectively attract, develop and retain our future leaders; effective inventory management, disruptions in our supply chain and our ability to control costs; the impact of any systems failures, cybersecurity and/or security breaches, including any security breach that results in the theft, transfer or unauthorized disclosure of customer, employee or company information or our compliance with information security and privacy laws and regulations in the event of such an incident; successful execution of our information technology strategy; efficient and proper allocation of our capital resources; our ability to safeguard our reputation and maintain our vendor relationships; the impact of economic and market conditions and the resultant impact on consumer spending patterns; our ability to respond to the business environment, fashion trends and consumer preferences, including changing expectations of service and experience in stores and online; the effectiveness of planned advertising, marketing and promotional campaigns in the highly competitive retail industry; weather conditions, natural disasters, health hazards, national security or other market disruptions, or the prospects of these events and the impact on consumer spending patterns; our compliance with applicable banking related laws and regulations impacting our ability to extend credit to our customers, employment laws and regulations, certain international laws and regulations, other laws and regulations applicable to us, including the outcome of claims and litigation and resolution of tax matters, and ethical standards; impact of the current regulatory environment and financial system and health care reforms; compliance with debt covenants, availability and cost of credit, changes in interest rates, and trends in personal bankruptcies and bad debt write-offs; and the timing and amounts of share repurchases by the company, if any, or any share issuances by the company, including issuances associated with option exercises or other matters. Our SEC reports, including our Form 10-K for the fiscal year ended February 2, 2013, contain other information on these and other factors that could affect our financial results and cause actual results to differ materially from any forward-looking information we may provide. The company undertakes no obligation to update or revise any forward-looking statements to reflect subsequent events, new information or future circumstances.

NORDSTROM, INC.

CONSOLIDATED STATEMENTS OF EARNINGS

(unaudited; amounts in millions, except per share amounts)

Quarter Ended

5/4/13

4/28/12

Net sales

$

2,657

$

2,535

Credit card revenues

92

90

Total revenues

2,749

2,625

Cost of sales and related buying and occupancy costs

(1,673

)

(1,584

)

Selling, general and administrative expenses

(801

)

(761

)

Earnings before interest and income taxes

275

280

Interest expense, net

(39

)

(40

)

Earnings before income taxes

236

240

Income tax expense

(91

)

(91

)

Net earnings

$

145

$

149

Earnings per share:

Basic

$

0.74

$

0.72

Diluted

$

0.73

$

0.70

Weighted-average shares outstanding:

Basic

195.6

207.3

Diluted

199.0

211.4

NORDSTROM, INC.

CONSOLIDATED BALANCE SHEETS

(unaudited; amounts in millions)

5/4/13

2/2/13

4/28/12

Assets

Current assets:

Cash and cash equivalents

$

1,190

$

1,285

$

1,647

Accounts receivable, net

2,087

2,129

2,008

Merchandise inventories

1,485

1,360

1,372

Current deferred tax assets, net

226

227

215

Prepaid expenses and other

84

80

79

Total current assets

5,072

5,081

5,321

Land, buildings and equipment (net of accumulated depreciation of $4,164, $4,064 and $3,865)

2,624

2,579

2,472

Goodwill

175

175

175

Other assets

264

254

290

Total assets

$

8,135

$

8,089

$

8,258

Liabilities and Shareholders' Equity

Current liabilities:

Accounts payable

$

1,206

$

1,011

$

1,176

Accrued salaries, wages and related benefits

230

404

232

Other current liabilities

856

804

793

Current portion of long-term debt

7

7

6

Total current liabilities

2,299

2,226

2,207

Long-term debt, net

3,119

3,124

3,137

Deferred property incentives, net

482

485

503

Other liabilities

347

341

328

Commitments and contingencies

Shareholders' equity:

Common stock, no par value: 1,000 shares authorized; 195.0, 197.0 and 208.6 shares issued and outstanding

1,698

1,645

1,557

Retained earnings

235

315

570

Accumulated other comprehensive loss

(45

)

(47

)

(44

)

Total shareholders' equity

1,888

1,913

2,083

Total liabilities and shareholders' equity

$

8,135

$

8,089

$

8,258

NORDSTROM, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited; amounts in millions)

Quarter Ended

5/4/13

4/28/12

Operating Activities

Net earnings

$

145

$

149

Adjustments to reconcile net earnings to net cash provided by operating activities:

Depreciation and amortization expenses

109

101

Amortization of deferred property incentives and other, net

(16

)

(18

)

Deferred income taxes, net

(11

)

-

Stock-based compensation expense

17

13

Tax benefit from stock-based compensation

6

13

Excess tax benefit from stock-based compensation

(7

)

(14

)

Provision for bad debt expense

14

9

Change in operating assets and liabilities:

Accounts receivable

8

(2

)

Merchandise inventories

(143

)

(204

)

Prepaid expenses and other assets

(5

)

2

Accounts payable

141

203

Accrued salaries, wages and related benefits

(174

)

(156

)

Other current liabilities

54

33

Deferred property incentives

16

21

Other liabilities

7

9

Net cash provided by operating activities

161