12 May Nordstrom Q1 In Line with Expectations
Nordstrom Inc. reported first quarter earnings in-line with company expectations.
Earnings per diluted share for the first quarter ended April 29, 2017 was 37 cents a share. This included an interest expense charge of $18 million, or 6 cents, related to a $650 million debt refinancing completed in the first quarter of 2017, which was not included in the company’s outlook.
This compares to earnings per diluted share of 26 cents for the first quarter ended April 30, 2016, which included non-operational charges of $30 million, or 10 cents, primarily related to higher credit chargeback expenses associated with an industry change in liability rules. Excluding non-operational charges of $30 million in 2016 and $18 million of debt refinancing costs in 2017, earnings per diluted share for the first quarter of 2017 increased 19 percent over the same period last year.
Total company net sales increased 2.7 percent and comparable sales decreased 0.8 percent, compared with the same quarter last year. This was consistent with trends experienced over the past year. Nordstrom continued its progress in executing its customer strategy while maintaining execution around inventory and expenses:
- Online sales were 24 percent of total net sales, driven by 11 percent growth at Nordstrom.com and 19 percent at Nordstromrack.com/HauteLook
- Through the successful partnership with TD Bank, credit card revenues increased 17 percent excluding amortization expenses related to the sale of the credit card portfolio in October 2015
- Total customer count increased compared with the first quarter ended 2016, reflecting the company’s ongoing efforts to gain new customers
- The company reiterated its annual outlook for earnings per diluted share of $2.75 to $3.00, net sales increase of 3 to 4 percent and approximately flat comparable sales.
First Quarter Summary
First quarter net earnings were $63 million and earnings before interest and taxes (“EBIT”) was $151 million, or 4.6 percent of net sales, compared with net earnings of $46 million and EBIT of $106 million, or 3.3 percent of net sales, during the same period in fiscal 2016.
Retail EBIT increased $25 million compared with the same quarter last year. Excluding non-operational charges in 2016, Retail
EBIT decreased $5 million, or 3.7 percent.
Credit EBIT increased $20 million, due to higher credit card revenues including a reduction in amortization expenses of $7 million related to the sale of the credit card portfolio.
Total company net sales of $3.3 billion for the first quarter increased 2.7 percent compared with net sales of $3.2 billion during the same period in fiscal 2016. Total company comparable sales for the first quarter decreased 0.8 percent.
In the Nordstrom brand, including U.S. and Canada full-line stores and Nordstrom.com, net sales when combined with Trunk Club, decreased 1.7 percent and comparable sales decreased 2.8 percent. Across U.S. full-line stores and Nordstrom.com the top-performing merchandise categories were Men’s and Women’s Apparel. The West was the top-ranking U.S. geographic region.
In the Nordstrom Rack brand, which consists of Nordstrom Rack stores and Nordstromrack.com/HauteLook, net sales increased 8.7 percent and comparable sales increased 2.3 percent. The West was the top-ranking geographic region.
Retail gross profit, as a percentage of net sales, of 34.3 percent increased 7 basis points compared with the same period in fiscal 2016. This reflected improved gross margin performance in the full-price business, partially offset by increased markdowns in the off-price business. Ending inventory growth of 1.6 percent was in-line with net sales growth of 2.7 percent.
Selling, general and administrative expenses, as a percentage of net sales, of 32 percent decreased 70 basis points compared with the same period in fiscal 2016. Excluding the non-operational charges of $30 million in 2016, selling, general and administrative expenses increased 24 basis points primarily due to planned technology expenses.
The company expanded its Nordstrom Rewards loyalty program in May 2016 to enable all customers to earn benefits regardless of how they choose to pay. Nordstrom has more than 8.6 million active Rewards customers in the U.S. and Canada, up over 70 percent, from approximately 5 million a year ago. Sales from Nordstrom Rewards customers represented 47 percent of first quarter sales, compared with 39 percent a year ago.
During the quarter, the company repurchased 4.6 million shares of its common stock for $206 million. A total capacity of $414 million remains available under its existing share repurchase board authorization. The actual number, price, manner and timing of future share repurchases, if any, will be subject to market and economic conditions and applicable Securities and Exchange Commission (“SEC”) rules.
Return on invested capital (“ROIC”) for the 12 fiscal months ended April 29, 2017 was 8.7 percent compared with 10 percent in the prior 12-month period. Results for the current period were negatively impacted by approximately 320 basis points due to the Trunk Club non-cash goodwill impairment charge in the third quarter of 2016. A reconciliation of this non-GAAP financial measure to the closest GAAP measure is included below.
To date in fiscal 2017, the company opened six Nordstrom Rack stores and closed one full-line store.
Fiscal Year 2017 Outlook
The company’s annual outlook expectations for earnings per diluted share are unchanged, incorporating first quarter results, debt refinancing costs and the impact of share repurchases in the first quarter. Nordstrom’s expectations for fiscal 2017 are as follows:
- Net sales (percent) 3 to 4 increase
- Comparable sales (percent) Approximately flat
- Retail EBIT (million) $780 to $840
- Credit EBIT (million) Approximately $140
- Earnings per diluted share $2.75 to $3.00