25 Feb Nordstrom Q4 Profit Tops Guidance
Nordstrom, Inc. reported fiscal 2013 earnings per diluted share of $3.71, which exceeded the company’s full-year outlook of $3.65 to $3.70. The company continued to make progress in executing its customer strategy through its investments to drive growth across channels, while maintaining disciplined execution around inventory and expenses.
Similar to many other retailers, the company follows the retail 4-5-4 reporting calendar, which included an extra week in the fourth quarter of fiscal 2012 (the “53rd week”). The 53rd week represented net sales of approximately $162 million and earnings per diluted share of approximately $0.04 for both the fourth quarter and fiscal year 2012. The 53rd week is not included in same-store sales calculations.
Earnings per diluted share for the fourth quarter ended February 1, 2014, were $1.37 compared with $1.40 for the same quarter last year. Fourth quarter net earnings were $268 million compared with $284 million for the same quarter last year. The company’s fourth quarter sales performance reflected trends consistent with its experience throughout the year. Total company same-store sales increased 2.6 percent, compared with last year’s increase of 6.3 percent. Total company net sales of $3.6 billion were flat with the same period in fiscal 2012. Excluding the 53rd week, total company net sales increased 5.2 percent for the fourth quarter compared with the same period last year.
During the fourth quarter, the company issued $665 million of 5.00% senior unsecured notes, due January 2044. The company used $400 million of the proceeds to retire all senior unsecured notes due June 2014. The remaining debt was exchanged for $201 million of outstanding 7.00% senior notes, due January 2038, and to pay for the related premium. The net impact of these transactions is expected to reduce future borrowing costs. Earnings before taxes in the fourth quarter were reduced by non-recurring expenses of approximately $14 million, or earnings per diluted share of $0.04.
FOURTH QUARTER SUMMARY
Nordstrom same-store sales, which consist of the full-line and Direct businesses, increased 2.2 percent compared with last year’s same-store sales increase of 6.1 percent. Top-performing merchandise categories included Cosmetics, Accessories, and Men’s Shoes. Momentum continued in Women’s Apparel, outperforming the Nordstrom average for the quarter.
Full-line same-store sales decreased 3.3 percent compared with last year’s same-store sales increase of 2.2 percent. The Southwest and Southeast regions were the top-performing geographic areas.
Direct same-store sales increased 30 percent, building on last year’s increase of 31 percent, driven by expanded merchandise selection and ongoing technology investments to enhance the customer experience.
Nordstrom Rack net sales increased $71 million, or 10.2 percent, compared with the same period in fiscal 2012, reflecting 22 new stores during fiscal 2013. Nordstrom Rack same-store sales increased 3.6 percent on top of last year’s same-store sales increase of 7.1 percent.
HauteLook same-store sales increased by 30 percent.
Gross profit, as a percentage of net sales, decreased 55 basis points compared with the same period in fiscal 2012 primarily due to increased markdowns in response to heightened promotional activity during the holidays and higher occupancy costs related to Nordstrom Rack’s accelerated store expansion.
Sales per square foot decreased 2.4 percent compared with the same period in fiscal 2012, but increased 2.2 percent when excluding last year’s 53rd week. Ending inventory per square foot increased 9.4 percent compared with the same period in fiscal 2012, outpacing the adjusted increase in sales per square foot. This was primarily attributable to the planned investment in pack and hold inventory at Nordstrom Rack, which represented 11 percent of total inventory at the end of fiscal 2013, compared with 9 percent in fiscal 2012. The increase also reflected planned inventory increases in full-line stores to fuel growth in well-performing merchandise categories. The Company believes its inventory level as of the end of the year is appropriate.
Selling, general and administrative expenses, as a percentage of net sales, decreased 30 basis points compared with the same period in fiscal 2012. This primarily was due to lower selling expenses, partially offset by $7 million of growth-related investments for the planned entry into Canada and for Nordstrom Rack’s accelerated store expansion. For fiscal 2013, these expenses were $23 million, in-line with the Company’s annual guidance of $20 to $25 million.
In the Credit business, overall credit card performance continued to improve with delinquency and write-off rates at approximately a five-year low. Given this performance and the underlying economic trends, the reserve for bad debt was reduced by $5 million.
During the quarter, the Company repurchased 2.5 million shares of its common stock for $154 million. A total of $670 million remains under existing share repurchase board authorization. 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.
FULL YEAR SUMMARY
Total Company net sales of $12.2 billion increased 3.4 percent compared with fiscal 2012. Excluding the 53rd week, total company net sales increased 4.9 percent compared with fiscal 2012. Total Company same-store sales increased 2.5 percent, on top of last year’s increase of 7.3 percent.
Nordstrom same-store sales increased 2.3 percent compared with last year’s same-store sales increase of 7.5 percent. Top-performing merchandise categories included Cosmetics, Men’s Shoes, and Women’s Apparel.
Full-line same-store sales decreased 2.1 percent compared with last year’s same-store sales increase of 3.9 percent. The Southwest and Southeast regions were the top-performing geographic areas.
Direct same-store sales increased 30 percent, on top of last year’s increase of 37 percent, driven by expanded merchandise selection and ongoing technology investments to enhance the customer experience. This represents Direct’s third consecutive year of achieving same-store sales growth of at least 30 percent.
Nordstrom Rack net sales increased $294 million, or 12.0 percent, compared with the same period in fiscal 2012, reflecting 22 new stores during fiscal 2013. Nordstrom Rack same-store sales increased 2.7 percent on top of last year’s same-store sales increase of 7.4 percent.
HauteLook same-store sales increased by 27 percent.
The Nordstrom Rewards loyalty program continued to play an important role in reaching new customers and strengthening existing customer relationships. For the second consecutive year, the Company opened over one million new accounts. With 3.8 million active members, sales from members for fiscal 2013 represented 38 percent of sales, increasing from 36 percent in fiscal 2012.
Return on invested capital (“ROIC”) for the 12 months ended February 1, 2014 was 13.6 percent compared with 13.9 percent in the prior 12-month period. A reconciliation of this non-GAAP financial measure to the closest GAAP measure is included below.
CAPITAL INVESTMENT AND EXPANSION UPDATE
In fiscal 2014, the Company’s capital expenditures, net of property incentives, are expected to total between $840 and $880 million, compared with $714 million in fiscal 2013. The majority of the increase represents investments to fuel online and Nordstrom Rack growth in addition to the planned entry into Canada.
Nordstrom has announced plans to open the following stores in fiscal 2014:
FISCAL YEAR 2014 OUTLOOK
In 2014, Nordstrom plans to continue to invest and build upon its foundation for achieving sustainable growth in sales, earnings and ROIC. The Company expects its planned entry into Canada to continue to be dilutive to earnings, primarily due to ongoing infrastructure investments and pre-opening costs. The estimated loss before interest and taxes for Canada is expected to be approximately $35 million in fiscal 2014, compared with a loss before interest and taxes of $14 million in fiscal 2013. This outlook also incorporates Nordstrom Rack’s accelerated store expansion and increased technology investments to improve service and experience across all channels. These investments are expected to increase depreciation and rent expense in fiscal 2014. Depreciation and amortization expense of approximately $514 million is expected in fiscal 2014, an increase of 13 percent from $454 million in fiscal 2013. Rent expense of approximately $147 million is expected in fiscal 2014, an increase of 17 percent from $125 million in fiscal 2013.
The company’s expectations for fiscal 2014 are as follows:
For the first quarter of fiscal 2014, the Company expects earnings per diluted share of $0.60 to $0.70, compared with $0.73 in the same period last year. This includes a total sales increase in the first quarter of 3.5 to 5.5 percent, which is below the Company’s full year outlook of a 5.5 to 7.5 percent increase. The full year outlook contemplates the following timing considerations:
Annualization of higher infrastructure investments in the first half of the year related to the Canada expansion in addition to pre-opening costs related to the initial store opening planned in the third quarter
Two new full-line stores planned in the third quarter