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Nordstrom Net Drops 67.9 Percent

Upscale department store chain Nordstrom forecasts declines in earnings and sales in new year.

Upscale department store chain Nordstrom Inc. said Monday fourth-quarter earnings dropped more than two-thirds and forecast double-digit declines in sales and earnings in 2009.


For the three months ended Jan. 31, net income fell 67.9 percent to $68 million, or 31 cents a diluted share, from $212 million, or 92 cents, in the comparable 2007 quarter. The quarterly profit beat analysts’ projections by a penny.

Sales declined 8.5 percent to $2.3 billion from $2.51 billion, and in full-line stores fell 15.8 percent on a comparable-store basis.

Quarterly gross margin receded to 32 percent of sales from 37.6 percent and selling, general and administrative expenses were reduced by $25 million, excluding additional expenses of $58 million from higher reserves for bad debt and new stores.

“This was a challenging year,” president Blake Nordstrom said on an earnings call to Wall Street analysts. “We continue to work on adjusting our mechanize mix to the times. We are not going after a different customer or changing our strategy, but our circumstances have clearly changed over the past year.”

Hurt by a highly promotional holiday season, the Seattle-based chain said it hopes to avoid large clearance events, and is working with vendors to provide the right balance of price, value and quality.

The company said it will discontinue providing quarterly earnings estimates “given the uncertainty surrounding the economic environment.”

The company said it still plans on opening three full-line stores in 2009, and five off-price Nordstrom Rack stores in the spring. In 2010, the retailer said it expects to open three to four stores, down from four to five. But there is still “plenty of headroom to grow the company,” said Erik Nordstrom, executive vice president and president of stores.

The company also said it has seen some “softening” in its credit business, pointing to a rising delinquency rate.

“The worst unemployment trends will continue to put pressure on credit card metrics, and our 2009 plan assumed that unemployment rates exceed 9 percent,” said executive vice president and chief financial officer Mike Koppel.

Koppel said the company is monitoring the credit markets to determine the best time to refinance its short-term borrowing with long-term debt. He added that Nordstrom ended the year with $72 million in cash, compared with $358 million in 2007, and $675 million available in short-term borrowing capacity. The retailer’s next debt maturity is a $350 million securitized note due in April 2010.

The chain projected that earnings in the new year would come in between $1.10 and $1.40 a diluted share, based on a same-store sales decline of 10 to 15 percent and gross margin erosion of another 150 to 250 basis points.

Analysts were looking for earnings of $1.81 cents a share, on sales of $8.28 billion, according to Yahoo Finance.

For the full year, net income slid 43.9 percent to $401 million, or $1.83 a diluted share, as sales contracted 6.3 percent to $8.27 billion.

“While 2009 is likely to be another challenging year, we are focused on the factors in our control and are constantly driving to enhance the customer experience,” Koppel said. He explained that the company’s current financial plan is focused in part on generating positive free cash flow and maintaining a strong balance sheet.