26 Aug Nordstrom Raises Revenue Forecast As Sales Revive
Nordstrom Inc. raised its guidance for the year after reporting second-quarter results that topped expectations.
Nordstrom said the results reflected a continued broad-based improvement in sales trends at Nordstrom and Nordstrom Rack across categories and geographies.
The company reported net earnings of $80 million or $0.49 per diluted share, topping Wall Street’s consensus estimate of 28 cents. Earnings before interest and taxes (EBIT) reached $151 million.
For the second quarter ended July 31, 2021, net sales increased 101 percent to $3,57 billion, topping Wall Street’s consensus estimate of $3.33 billion. Sales decreased 6 percent from the same period in fiscal 2019, representing a sequential improvement of approximately 700 basis points relative to the first quarter of fiscal 2021. The timing shift of its annual Anniversary Sale, with roughly one week falling into the third quarter of 2021, had a negative impact of approximately 200 basis points on net sales compared with fiscal 2019. Adjusting for this timing shift, sales trends improved by about 900 basis points relative to the first quarter.
As consumers refreshed their wardrobes, the company’s core categories of shoes, apparel and accessories experienced the largest improvement in sales trends relative to the first quarter. In addition, sales in active, home and designer categories continued to grow versus 2019.
“Our second-quarter results demonstrate the strength of our two brands, the power of our ‘closer to you’ strategy and the success of our iconic Anniversary Sale,” said Erik Nordstrom, CEO, Nordstrom, Inc. “We capitalized on improving customer demand with focused execution, healthy inventory sell-through and continued expense management to deliver strong quarterly results. We remain focused on executing our strategy to win in our most important markets, broaden the reach of Nordstrom Rack and increase our digital velocity and are well-positioned for continued progress toward our long-term strategic and financial goals as we look ahead to the second half of the year.”
Total Anniversary event sales increased 1 percent compared with 2019, including the event’s final week, which fell in the third quarter. Traffic and sales trends were strong across digital and stores as customers responded positively to the expanded selection, better in-stock rates on top-selling items and enhanced capabilities, including convenient pick-up options at Nordstrom and Nordstrom Rack stores.
“A compelling merchandise assortment, combined with new and differentiated services and experiences, contributed to strengthening customer engagement and improving financial results during our Anniversary Sale. We want to extend our heartfelt thanks to our outstanding employees and brand partners for their contributions to a successful event,” said Pete Nordstrom, president and chief brand officer, Nordstrom, Inc.
In July, Nordstrom strengthened its financial position by retiring the $500 million unsecured 4.0 percent notes due in October 2021 using cash on hand; this will reduce annualized interest expense by $20 million, beginning in the third quarter of fiscal 2021. The company remains on track to reduce its leverage ratio to approximately three times by year-end.
Second Quarter 2021 Summary
- Total company net sales increased 101 percent compared with the same period in fiscal 2020, during which stores were temporarily closed for approximately half of the quarter and the Anniversary Sale temporarily shifted to the third quarter. Net sales decreased 6 percent relative to the same period in fiscal 2019, a sequential improvement of approximately 700 basis points relative to the first quarter of 2021. The timing shift of the Anniversary Sale, with approximately one week falling into the third quarter of 2021, had a negative impact on net sales of approximately 200 basis points compared with the second quarter of 2019.
- For the Nordstrom brand, net sales increased 127 percent compared with the same period in fiscal 2020 and decreased 5 percent compared with the same period in fiscal 2019. The timing shift of the Anniversary Sale had a negative impact on Nordstrom’s net sales of approximately 300 basis points compared with the second quarter of 2019. For the Nordstrom Rack brand, net sales increased 61 percent compared with the same period in fiscal 2020 and decreased 8 percent compared with the same period in fiscal 2019.
- Digital sales increased 30 percent compared with the same period in fiscal 2020 and increased 24 percent compared with the same period in fiscal 2019. The timing shift of the Anniversary Sale had a negative impact on its digital sales of approximately 500 basis points compared with the second quarter of 2019. Digital sales represented 40 percent of total sales during the quarter.
- Gross profit, as a percentage of net sales, of 35 percent increased approximately 1,370 basis points compared with the same period in fiscal 2020, primarily due to leverage from higher net sales and lower markdowns. Gross profit, as a percentage of net sales, was flat compared with the same period in fiscal 2019, as lower markdowns resulting from healthy inventory sell-through offset deleverage on lower net sales.
- Ending inventory increased 13 percent compared with the same period in fiscal 2019, versus a 6 percent decrease in sales. The change in inventory levels versus 2019 was primarily due to the timing shift of the Anniversary Sale and the company’s actions to pull forward receipts to mitigate continuing supply chain backlogs and support improving sales trends.
- Selling, general and administrative (“SG&A”) expenses, as a percentage of net sales, of 33 percent decreased approximately 1,350 basis points compared with the same period in fiscal 2020, primarily as a result of leverage on higher sales and the continued benefit of permanent reductions in overhead expenses of approximately 15 percent. SG&A expenses, as a percentage of net sales, increased 170 basis points compared with the same period in fiscal 2019 as a result of freight and labor cost pressures, partially offset by continued benefits from resetting the cost structure in 2020.
- EBIT was $151 million in the second quarter of 2021, compared with a loss of $370 million during the same period in fiscal 2020, primarily due to higher sales volume and improved merchandise margins. Last year’s loss included $23 million in pretax charges related to COVID-19. EBIT was $65 million lower than the second quarter of fiscal 2019 due to freight and labor cost pressures and lower sales volume, partially offset by continued benefits from resetting the cost structure in 2020.
- Interest expense, net, of $40 million decreased from $51 million during the same period in fiscal 2020 primarily due to the redemption of the 8.75 percent secured notes during the first quarter of fiscal 2021.
- Income tax expense was $31 million, or 28 percent of pretax earnings, compared with the income tax benefit of $166 million, or 40 percent of the pretax loss, in the same period in fiscal 2020. Last year’s income tax included benefits associated with the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”).
- Second-quarter net income of $80 million increased from a net loss of $255 million during the same period in fiscal 2020, which included after-tax COVID-19 related charges of $14 million.
- The second quarter ended with $1.3 billion in available liquidity, including $487 million in cash.
Fiscal Year 2021 Outlook
Based on better than expected results in the first half, and its expectations for continued progress in the second half, the company updated its financial outlook for fiscal 2021 as follows:
- Revenue growth, including retail sales and credit card revenues, up more than 35 percent, up more than 25 percent previously.
- EBIT margin, as a percent of sales: 3.0 to 3.5 percent, up from approximately 3 percent previously.