Nordstrom Q2 earnings are out and they’re good, driven by its successful Anniversary Sale and overall online performance. Stocks popped at the positive news. Net sales increased 3.5% and comp sales increased 1.7%, compared with the same quarter last year. Nordstrom’s Anniversary Sale, historically its largest event of the year, performed better than recent trends. Nordstrom continued its progress in executing its customer strategy while maintaining discipline around inventory and expenses.
“In a day of muted results clouded by continued sales declines, Nordstrom has provided a ray of sunshine,” GlobalData Retail Managing Director Neil Saunders wrote in a note to clients. “The company has, for a long time, invested in its retail proposition and has taken sound strategic decisions like the diversification into off-price and the development of an omnichannel plan.”
Below, a detailed summary:
- As a result of the Company’s ongoing efforts to provide newness and limited-distribution product to customers, Nordstrom proprietary labels represented three of the top five selling brands during the Anniversary Sale.
- In executing its digital strategy, the Company delivered online sales growth of 20% at Nordstrom.com, reflecting its largest volume day in company history, and 27% at Nordstromrack.com/HauteLook.
- The Nordstrom Rewards loyalty program continues to play an important role in reaching new customers and strengthening existing customer relationships. The Company has 9.4 million active Rewards customers in the U.S. and Canada, up approximately 50%, from 6.2 million a year ago. Sales from Nordstrom Rewards customers represented 56% of second quarter sales, compared with 48% a year ago.
“Our Rack business is an important way to attract new customers to Nordstrom,” Co-President Blake Nordstrom said on a call with analysts and investors. As the company opens new off-price locations, “these stores incorporate our latest store designs with improvements to the layout and fitting room experience,” he added.
Nordstrom should have 232 Rack locations open, in total, by year end.
SECOND QUARTER SUMMARY
- Second quarter net earnings were $110 million and earnings before interest and taxes (“EBIT”) were $217 million, or 5.8% of net sales, compared with net earnings of $117 million and EBIT of $221 million, or 6.1% of net sales, during the same period in fiscal 2016
- In the Nordstrom brand, including U.S. and Canada full-line stores and Nordstrom.com, net sales when combined with Trunk Club, increased 2.4% and comparable sales increased 1.4%. The top-performing merchandise categories were Women’s Apparel and Beauty. The East 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 9.8% and comparable sales increased 3.1%. The East was the top-ranking geographic region.
- Retail gross profit, as a percentage of net sales, of 34.1% decreased 25 basis points compared with the same period in fiscal 2016. This primarily reflected higher occupancy expenses related to new store growth for Nordstrom Rack and Canada in addition to higher loyalty expenses during the Anniversary Sale. This was partially offset by improved merchandise margins, reflecting the continued strength in regular price selling. Net sales growth of 3.5% exceeded inventory growth of 2.2%.
FISCAL YEAR 2017 OUTLOOK
The Company updated its annual outlook expectations for earnings per diluted share to incorporate second quarter results. Nordstrom’s current expectations for fiscal 2017 are as follows:
|Prior Outlook||Current Outlook|
|Net sales (percent)||3 to 4 increase||Approximately 4|
|Comparable sales (percent)||Approximately flat||Approximately flat|
|Retail EBIT (million)||$780 to $840||$790 to $840|
|Credit EBIT (million)||Approximately $140||Approximately $145|
|Earnings per diluted share||$2.75 to $3.00||$2.85 to $3.00|