By  on August 18, 2006

Nordstrom Inc. on Thursday reported net income rose 20 percent to $178.8 million in the second quarter ended July 31 on a 7.8 percent rise in sales to $2.3 billion.

Earnings per share rose 26 percent to 67 cents, compared with 53 cents in the same period last year, and were ahead of expectations. The results compare with net income of $148.9 million last year on sales of $2.1 billion in the second quarter of 2005. Same-store sales for the period gained 5.7 percent.

Unlike most retailers, Nordstrom's second-quarter sales are an important contributor to the company's annual results, roughly equaling 90 to 95 percent of its fourth-quarter volume.

In June, Nordstrom's experiences clearance activity, as most retailers do. Its anniversary sale in July produces the highest sales volume days of the entire year. Mike Koppel, executive vice president and chief financial officer, said on a conference call with Wall Street analysts that the June clearances and anniversary sale delivered positive same-store sales increases, while regular-priced business showed strength in the quarter.

The anniversary sale is significant because it offers insight into how customers will respond to fall merchandise; the sale is a preview of the season.

The strongest regional performance for full-line stores was in the Northwest, where merchandise categories ahead of plan included men's apparel, cosmetics, accessories and intimate apparel. Nordstrom's Rack division extended its streak of double-digit same-store sales increases to 24 months. Gross profit margin increased 26 basis points for the quarter over last year and merchandise margin was above plan and beat last year's results.

"We're beginning to see some traction from our cohesive approach in women's apparel," Pete Nordstrom, president of merchandising, said on the call. "As we move into the fall season, we have a lot of work ahead of us."

While the anniversary event produced only a 2.1 percent sales increase in stores, when combined with the online business, the increase was 4.1 percent.

"We've had some challenges over the last quarter or two in Brass Plum [teen fashion], women's and juniors," Nordstrom said. "That's a big part of our business, particularly during the anniversary sale. So when that isn't particularly healthy in an event like that, it drags the total down."Nordstrom is trying to offer more luxury brands throughout the store. "If we're able to bring in the coveted brands...they sell," Nordstrom said. "Price doesn't really seem to be a barrier as much as the desirability and the fashion of it. Yes, there are lines that we either don't get or don't get as much of and that's just an ongoing pursuit for us and I think always will be."

Alluding to Federated Department Store's sale of Lord & Taylor and other consolidations in the retail industry that allowed Nordstrom to acquire real estate in certain shopping centers, Pete Nordstrom said: "As the retail landscape continues to transform, we are positioned to benefit. The number of attractive opportunities keeps growing and we look forward to sharing any developments as they unfold."

The company in October will be relocating its Nordstrom Topanga store in Canoga Park, Calif., he said.

Nordstrom has tried to offer online a wider selection of merchandise that can be found in stores. The strategy has paid off. Online sales are exceeding industry average and the direct business is expected to reach $1 billion in sales in the next four to six years. "It's become a source of substantial growth potential," Blake Nordstrom, president of Nordstrom Inc., said. "Success will be measured over a course of years for our multichannel offering."

The company is installing a new technology platform that will bring the direct and full-line store inventory systems together to create a more seamless shopping experience.

During the quarter, Nordstrom repurchased 9.7 million shares of stock for a total of $350 million. For the third quarter, the retailer anticipates low single-digit same-store sales increases and earnings per share in the range of 40 cents to 45 cents versus 39 cents in the third quarter last year.

Updated earnings outlook for the year is $2.31 to $2.39 per share, up from $2.24 to $2.32 per share.

Nordstrom shares on Thursday closed at $36.49, down 1 cent on the New York Stock Exchange.

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