Nordstrom isn’t about to let a tough fourth quarter and soft outlook for the year deter its long-term objectives.
This story first appeared in the February 26, 2008 issue of WWD. Subscribe Today.
The Seattle-based specialty chain reported Monday that for the fourth quarter ended Feb. 2, net earnings dropped 8.6 percent to $212 million, or 92 cents a diluted share, from $232 million, or 89 cents, in the corresponding period a year earlier.
Total sales reached $2.5 billion, a 4.4 percent drop from $2.6 billion in last year’s fourth quarter. Comp-sales declined 0.7 percent, not too far off the chain’s plan for flat sales. The company noted that the fourth quarter of 2006 had 53 weeks compared with the normal 52.
And in one of the strongest indications yet that the tough U.S. economy has begun to impact higher-end retailing, Nordstrom projected a decline of 3 to 5 percent in comp-store sales in the first quarter of 2008 and earnings per share of 49 to 54 cents. For 2008, the company projected earnings per diluted share of $2.75 to $2.90, and flat to negative 2 percent comps.
However, store executives assured Wall Street analysts that despite the numbers, Nordstrom’s aggressive program of full-line store openings and elevating assortments with additional designer and upscale merchandise remains intact. They also said they worked hard to reduce bloated inventories last quarter, and feel confident their core customers will continue to purchase at higher rates than the average shopper across the country.
“Our long-term strategy is the right one,” Blake Nordstrom, president, said during a conference call after the market closed Monday. “We have confidence we can grow in new markets and add stores in existing markets.”
The plan is ambitious — to take the retailer to 140 to 150 stores by 2015, from the current 102.
“There may be current economic issues, but we feel we are well-positioned now and for the future” to get greater market share and share of the customers’ wallet, Blake Nordstrom said.
Shares of Nordstrom rose 98 cents, or 2.7 percent, to close at $36.98 on the New York Stock Exchange Monday. Earnings were announced after market close.
But the retailer isn’t overlooking the bumpy road ahead in 2008. As Nordstrom said, “In the short term we face challenges in women’s apparel [overall] and regionally in California, in particular.” He also acknowledged that in the fourth quarter, “We had more markdowns than in previous years.” The company overbought in the second half and had to cancel certain orders.
However, Nordstrom and his team believe their core customers, often considered “aspirational,” spend twice the rate of the average consumer on apparel. In the last 12 months, premium denim and contemporary trend items had “an excellent year” while the Northwest, South and Midwest were the best regions for the business. Designer merchandise across all categories, as well as accessories and women’s shoes, were the best-performing categories.
“Designer is a really growing part of our business. It continues to grow faster than any other category. We will keep investing,” said Pete Nordstrom, president of merchandising.
Overall, last year was a roller coaster. “The first half was successful in terms of sales. But we had our share of challenges in the back half,” Blake Nordstrom recalled.
For the year, net earnings rose 5.5 percent to $715 million from $678 million, and earnings per share rose to $2.88 from $2.55. There was a $20.9 million gain from the sale of Façonnable.
Comp-store sales rose 3.9 percent — the sixth consecutive year of comp-store growth — and total sales reached $8.8 billion from $8.6 billion. Sales per square foot hit $402.
This year, Nordstrom has set seven full-line store openings, including March 7, in the Ala Moana Center in Honolulu. With 210,000 square feet, it will be the chain’s largest opening this year, and first in the state.
Subsequent openings are in Burlington, Mass; Clinton Township, Mich.; Thousand Oaks, Calif.; Indianapolis; Pittsburgh, and Naples, Fla.
Nordstrom is also relocating in Tacoma, Wash., and will open Rack stores in Naperville, Ill. and Laguna Hills, Calif.
The most recent opening was two weeks ago in the Aventura Mall, in south Florida. “It has exceeded our plan to date,” Nordstrom said. “New stores are the most productive use of capital available to us.”
Renovations are important too, he stressed. “We will continue to invest in remodeling existing stores. We must keep the experience fresh and relevant for our customers.” Renovations in the Mall of America and downtown Portland, Ore., stores will lead to increased designer presentations in both units, he said. The plan is to remodel roughly six stores a year.
He also said Nordstrom by the second quarter will have “a single view of inventory across full line stores and direct giving us service improvements and efficiencies.” He explained that means the different channels will be better equipped to share merchandise information, including the availability of goods and do a better job at meeting customer requests. Nordstrom currently has a $600 million direct business.
In a research note, analyst Jennifer Black of Black & Associates, reported: “We believe that Nordstrom’s management is focused on their long-term strategy of providing quality merchandise in a value package through multichannel delivery options. Furthermore, the company has the financial flexibility and cash flow to navigate more volatile economic times with the ability to expand its store base, buy back shares, increase the dividend and invest in technology. Nordstrom is a core holding in a retail portfolio.”