Nordstrom Reports Second Quarter 2013 Earnings

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Nordstrom Reports Second Quarter 2013 Earnings

SEATTLE--(BUSINESS WIRE)-- Nordstrom, Inc. (NYS: JWN) today reported earnings per diluted share of $0.93 for the second quarter ended August 3, 2013, representing a 24 percent increase from $0.75 for the same quarter last year. Net earnings were $184 million compared with $156 million for the same quarter last year.

Total Company same-store sales for the second quarter increased 4.4 percent on top of last year's same-store sales increase of 4.5 percent. Nordstrom same-store sales during the Anniversary Sale increased in the low single-digit range. Total Company net sales of $3.1 billion for the second quarter increased 6.4 percent compared with net sales of $2.9 billion during the same period in fiscal 2012.


Sales trends throughout the second quarter showed moderate improvement relative to the first two months of the year but remained softer than anticipated. The impact of this was mitigated by disciplined execution of inventory and expenses, including a reduction in variable expenses associated with company performance.

The Anniversary Sale, which historically is the Company's largest sale event of the year, occurred in the second quarter, while in fiscal 2012 it overlapped the second and third quarters. This event shift resulted in a favorable comparison in the second quarter, which the Company expects will be offset by an unfavorable comparison in the third quarter. In the second quarter, the impact of the Anniversary Sale event shift increased same-store sales by approximately 250 basis points and increased earnings per diluted share by approximately $0.06.

Based on current sales trends, the Company reduced its full-year earnings per diluted share outlook to $3.60 to $3.70 compared to its prior outlook of $3.65 to $3.80. This reflects full-year same-store sales expectations of 2 to 3 percent compared to its prior outlook of 3 to 5 percent.

SECOND QUARTER SUMMARY

  • Nordstrom same-store sales, which consist of the full-line and Direct businesses, increased 4.2 percent. Top-performing merchandise categories included Men's Shoes, Men's Apparel, and Kids' Apparel.
  • Full-line same-store sales decreased 0.7 percent compared with last year's same-store sales increase of 1.1 percent. The Southeast and Southwest regions were the top-performing geographic areas.
  • Direct sales increased 37 percent in the second quarter, on top of last year's increase of 40 percent, fueled by expanded merchandise selection and ongoing technology investments to enhance the online experience.
  • Nordstrom Rack net sales increased $69 million, or 12 percent, compared with the same period in fiscal 2012, reflecting 17 new store openings since the second quarter of fiscal 2012. Nordstrom Rack same-store sales increased 2.4 percent on top of last year's same-store sales increase of 7.7 percent.
  • Gross profit, as a percentage of net sales, decreased 13 basis points compared with the same period in fiscal 2012 primarily due to higher expenses associated with the growth in the Fashion Rewards customer loyalty program. The Company reached 3.6 million active Fashion Reward members, an increase of 18 percent over last year.
  • Selling, general and administrative expenses, as a percentage of net sales, decreased 105 basis points compared with the same period in fiscal 2012, primarily due to the combination of expense leverage from increased sales volume, including the impact of the Anniversary Sale event shift, and a reduction in variable expenses associated with company performance. This was partially offset by investments in technology coupled with higher fulfillment expenses supporting online growth, in addition to incremental expenses related to the planned entry into Canada and accelerated Rack store expansion.
  • Earnings before interest and taxes of $335 million, or 10.8 percent of net sales, increased 16 percent compared to $290 million, or 9.9 percent of net sales, for the same quarter last year.
  • During the quarter, the Company repurchased 0.8 million shares of its common stock for $48 million. A total of $979 million 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 August 3, 2013 of 14.4 percent increased from 12.7 percent in the prior 12-month period. A reconciliation of this non-GAAP financial measure to the closest GAAP measure is included below.

EXPANSION UPDATE

Nordstrom announced plans to open 14 new Rack stores and relocate one full-line and two Rack stores during the remainder of 2013. In the second quarter of 2013, Nordstrom opened the following stores:

Location Store Name 

Square
Footage
(000's)

 Timing
Nordstrom Rack   
Birmingham, AlabamaRiver Ridge Shopping Center35May 16
Columbia, MarylandColumbia Crossing41May 16
Portland, Maine Maine Crossing 30 May 16
 
Number of stores Jul-13 Jul-12
Nordstrom117 117
Nordstrom Rack and other131114
Total248231
 
Gross square footage

25,567,000

24,974,000

 

FISCAL YEAR 2013 OUTLOOK

The Company revised its expectations for fiscal 2013, shown in comparison to prior outlook, as follows:

 
 

Prior Outlook

 

Current Outlook

Total sales4 to 6 percent increase3 to 4 percent increase
Same-store sales3 to 5 percent increase2 to 3 percent increase
Credit card revenues$0 to $5 million increase$0 to $5 million increase
Gross profit (%)10 to 30 basis point decrease30 to 40 basis point decrease
Selling, general and administrative expenses (%)0 to 10 basis point decrease0 to 10 basis point increase
Interest expense, net$5 million decrease$5 to $10 million decrease
Effective tax rate39.0 percent38.6 percent
Earnings per diluted share, excluding the impact of any future share repurchases

$3.65 to $3.80

$3.60 to $3.70

Diluted shares outstandingApproximately 200 millionApproximately 200 million
 

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.

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

 

 

 

Compared to Annual Fiscal 2013
Guidance Range

  

Annual Fiscal
2013 Guidance

 

Third Quarter
2013

 

Fourth Quarter
2013

Same-store sales2 to 3 percent increaseBelow In-Line
Earnings per diluted share 1 to 4 percent increase Below Below
 

CONFERENCE CALL INFORMATION

The Company's senior management will host a conference call to discuss second 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 203-369-1448 until the close of business on August 22, 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, and our Form 10-Q for the fiscal quarter ended May 4, 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 Six Months Ended
8/3/13 7/28/128/3/13 7/28/12
Net sales$3,104$2,918$5,761$5,453
Credit card revenues 92  88  184  178 
Total revenues3,1963,0065,9455,631
Cost of sales and related buying and

occupancy costs

(2,004)(1,879)(3,677)(3,463)
Selling, general and administrative expenses (857) (837) (1,658) (1,598)
Earnings before interest and income taxes335290610570
Interest expense, net (37) (40) (76) (80)
Earnings before income taxes298250534490
Income tax expense (114) (94) (205) (185)
Net earnings$184 $156 $329 $305 
 
Earnings per share:
Basic$0.94$0.76

 

$

1.68

$1.48
Diluted$0.93$0.75

 

$

1.66

$1.45
 
Weighted-average shares outstanding:
Basic195.5205.2

 

195.5

206.3
Diluted198.8208.7

 

198.9

210.0
 
 

NORDSTROM, INC.
CONSOLIDATED BALANCE SHEETS
(unaudited; amounts in millions)

 
 8/3/13 2/2/13 7/28/12
Assets
Current assets:
Cash and cash equivalents$1,128$1,285$1,258
Accounts receivable, net2,3692,1292,297
Merchandise inventories1,4641,3601,394
Current deferred tax assets, net244227233
Prepaid expenses and other 89  80  85 
Total current assets5,2945,0815,267
 
Land, buildings and equipment (net of accumulated depreciation of $4,270, $4,064 and $3,959)2,8102,5792,499
Goodwill175175175
Other assets 269  254  305 
Total assets$8,548 $8,089 $8,246 
 
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable$1,395$1,011$1,345
Accrued salaries, wages and related benefits322404290
Other current liabilities837804805
Current portion of long-term debt 407  7  6 
Total current liabilities2,9612,2262,446
 
Long-term debt, net2,7153,1243,133
Deferred property incentives, net490485493
Other liabilities351341338
 
Commitments and contingencies
 
Shareholders' equity:

Common stock, no par value: 1,000 shares authorized; 195.5, 197.0 and 201.4 shares issued and outstanding

 

1,762

1,645

1,582

Retained earnings313315296
Accumulated other comprehensive loss (44) (47) (42)
Total shareholders' equity 2,031  1,913  1,836 
Total liabilities and shareholders' equity$8,548 $8,089 $8,246 
 
 

NORDSTROM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited; amounts in millions)

 
 Six Months Ended
8/3/13 7/28/12
Operating Activities
Net earnings$329$305
Adjustments to reconcile net earnings to net cash provided by

operating activities:

Depreciation and amortization expenses220207
Amortization of deferred property incentives and other, net(32)(32)
Deferred income taxes, net(35)(30)
Stock-based compensation expense3431
Tax benefit from stock-based compensation1615
Excess tax benefit from stock-based compensation(17)(16)
Provision for bad debt expense3031
Change in operating assets and liabilities:
Accounts receivable(199)(220)
Merchandise inventories(119)
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