The company reported second quarter net income of $146 million, or 66 cents per share, compared with $105 million, or 48 cents per share, in the year-ago period. Revenue rose 13% from last year, to $2.5 billion on growth of both sales and credit-card revenue. On average, Wall Street analysts had estimated a profit of 66 cents, on lower revenue of $2.4 billion. Same-store sales rose 8.4% compared with the same period in 2009.
Despite the strength at retail, Nordstrom maintained its previous full-year earnings outlook for profit of $2.50 to $2.65 per share, while retail analysts expected $2.62 per share. For the fiscal year that ended in January, Nordstrom reported earnings of $2.01. The company also reiterated that it expects sales at stores open at least a year to increase as much as 6%.
One of the reasons for the strong sales growth in what usually is slower months was Nordstrom’s three special sale events including a Half-Yearly Sale for Women and Kids, Half-Yearly Sale for Men, and Anniversary Sale. It’s Nordstrom Rack division, however, reported nearly a 1% decline in same store sales.
Retail selling, general and administrative expenses climbed to $613 million from $531 million attributed to replenishing inventory, new store and website development and shipping merchandise to consumers. Some on Wall Street were disappointed that Nordstrom didn’t raise its yearly forecast, said Bill Smead, a portfolio manager at Smead Capital Management in Seattle.
“They are one of the few companies that are hiring people and doing things,” Smead said. “This is a short-term impingement, but it is wonderful for your earnings three or four years on.”
Inventory Levels Increase 14%
The fact that Nordstrom reported inventory was up 14% over the prior year also received scrutiny from analysts. Noting that the increase was the company’s highest in recent history, KeyBanc Capital Markets analyst Edward Yruma said, “We think the opportunity for earnings upside is significantly more muted, particularly in light of a still weak consumer and above-plan inventory levels.”
Blake Nordstrom, president, said Nordstrom is working to reduce “pockets” of excess inventories in women’s accessories to prevent future markdowns.