Bucking both the downcast mood at retail and a hammering across-the-board on Wall Street, Nordstrom Inc. delivered robust third-quarter earnings on strong sales Monday.
Bolstered by the sale of its Façonnable chain, Nordstrom noted that while markdowns during the quarter ate away at gross margins, its inventories are in good shape as the retailer navigates a challenging economic environment.
Nordstrom released its numbers after the closing bell Monday. Like other retailers, its stock had dropped sharply throughout the day; after the numbers were released Nordstrom stock rallied back over 11 percent in after-hours trading.
Net income for the quarter ended Nov. 3 surged 22.1 percent to $165.7 million, or 68 cents a diluted share, from $135.7 million, or 52 cents, in the prior year on sales that gained 5.3 percent to $1.97 billion from $1.87 billion. Same-store sales for the quarter showed an increase of 2.2 percent. The gain from the sale of Façonnable net of tax was $20.9 million.
Façonnable was sold to the Lebanese buyout firm M1 Group for $210 million during the summer.
Blake Nordstrom, president, said on a conference call with analysts that "all areas of our designer business continue to show strong results....Within the marketplace we are encouraged by the unique position we find ourselves in, and the amount of market share available for us to take advantage of gives us tremendous headroom to improve."
Nordstrom said the difficult retail landscape left the company with excess women's apparel, but the company is now on track.
"We take full accountability and are confident that our team has taken the necessary steps to put us back in a position of strength," he said. "In fact, today, we are back on track with our inventory plans. We also think we are well positioned for the important holiday sales time periods."
Because of markdowns during the quarter, the gross margin rate dropped to 37.65 from 38.03 percent. "Merchandise margin rate was unfavorably impacted by increased markdowns," the retailer said in a statement. "During the quarter, the company made good progress in aligning inventory levels to business trends. We believe inventories will be in line by yearend."By way of guidance, the company said it expects same-store sales for the fiscal year to show a gain of 3 to 4 percent with gross margins coming in flat. Full-year earnings per share are expected to be in the range of $2.87 to $2.91, which compares with $2.55 in 2006.
Excluding the gain from the sale of Façonnable, earnings per share were ahead of analysts' estimates by 5 cents.
Nordstrom's results contrasted with others of the past few weeks, which saw warnings from retailers and vendors such as Macy's Inc., Polo Ralph Lauren, Coach Inc., Talbots Inc., J.C. Penney & Co. Inc. and Kohl's Corp. Those companies cited negative macroeconomic forces for softer sales, profits and revised earnings estimates for the rest of the year.
The economic factors depressing business include rising fuel prices, a soft housing market, inflationary price trends, deflationary apparel prices and sagging consumer confidence. Credit woes in the financial markets sparked by the subprime mortgage crisis are also permeating through the broader market. Mortgage foreclosures and write-downs from the big banks are taking an equal toll on consumers and investors alike.
People are simply not feeling as wealthy as they have in recent years.
On Monday at the bell, the credit market woes sent stocks spiraling. In the retail sector, the S&P Retail Index shed 3 percent to close the day at 407.06. Prior to its earnings release, Nordstrom hit a 52-week low by falling 6.1 percent to $30.52 before rallying after the bell to close at $34. New lows were established by J.C. Penney, down 4.2 percent to $41.37, Limited, down 4.4 percent to $17.57, and Dillard's Inc., which fell 4.6 percent to close at $16.53.
Overall, the stock markets fell to a three-month low on Monday after Goldman Sachs advised investors to sell Citigroup Inc. The S&P 500 was down 1.8 percent to 1,433.27. The Dow Jones Industrial Average fell 1.7 percent to 12,958.44. The Nasdaq dropped 1.7 percent to 2,593.38.
However, Blake Nordstrom was upbeat on the call and said the company was well positioned in the market. "Continued improvement in our merchandise content coupled with an unwavering focus on servicing the customer have been and will continue to be the main priority," he added.During the quarter, the retailer opened three stores, one in Natick, Mass., one in Novi, Mich., and a Nordstrom Rack in Tukwila, Wash. The company said the stores have "exceeded expectations."
The retailer also said its board authorized an additional $1 billion for buying back stocks, which brings the share buyback program to $2.5 billion.
Nordstrom is on the move on other fronts. The company was said to have signed a nonbinding letter of intent on the former Drake Hotel in New York, bringing the retailer a step closer to securing a long-sought Manhattan location. However, Nordstrom could consider sites of different sizes, depending on the layout, the footprint of each level, ceiling heights and other physical factors. In addition to the space concerns, Nordstrom requires a location that attracts an upscale audience, has heavy pedestrian traffic all week and lots of public transportation nearby.
Blake Nordstrom said on the call that retailer is engaging in a capital projects plan for the next five years totaling $3 billion — the biggest capital expenditures project in the retailer's history.
Chief financial officer Michael Koppel said that $525 million will be spent on the expansion next year. In regard to the $3 billion package, "Approximately 80 percent of the total capital planned [will be on] our store base, which includes new stores, relocations and remodels," the cfo said. "We remain committed to our existing and future technology earmarking 10 percent of the plan for this purpose. The remainder will be used for general maintenance purposes."
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