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Nordstrom to Pump Up Rack, Online

On Thursday the retailer unveiled a 20 percent increase in fourth quarter earnings and outlined its plan to practically double its capital expenditures.

A Nordstrom store.

After a strong performance in 2012, Nordstrom Inc. is prepared to spend big to ramp up Rack, enter Canada with both full-line and Rack outlets, accelerate its direct business and mobile operations and build a Manhattan flagship.

Over the next five years, the Seattle-based upscale chain will practically double its capital expenditures to $3.7 billion, compared to the $1.9 billion spent over the last five years.

This year, between $750 million and $790 million for capex has been allocated, principally due to Rack and full-line store growth, the Manhattan store development, and increasing e-commerce fulfillment capacity, versus the $455 million spent in 2012.

Nordstrom intends to double the Rack count to 230 units over the next four years, with 24 openings seen this year and more than 30 seen in

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Though bullish on Rack and bringing brick and mortar to Manhattan and Canada, “Our fastest-growing channel is direct. We see substantial outsized growth to continue,” Blake Nordstrom, president of Nordstrom Inc., said during a conference call Thursday.

That was just after the retailer unveiled a 20 percent increase in fourth quarter earnings to $284 million from $236 million a year earlier, and a 26 percent increase in earnings per diluted share of $1.40 for the quarter ended Feb. 2 compared to $1.11 for the same quarter last year.

Sales in the quarter were $3.6 billion, a 13.5 percent gain from sales of $3.2 billion in the year-ago period. Same-store sales increased 6.3 percent.

Top-performing categories last quarter were men’s apparel, cosmetics, kids’ apparel, and surprisingly, women’s apparel, which had been soft for several seasons. “We started to see improvement in women’s apparel,” Nordstrom said, adding that Top Shop last year was launched in 14 stores. Nordstrom has also been remerchandising its Savvy areas for the past two months, and completed the process about a week ago. Top Shop is connected to Savvy, and some brands, such as Joie and Marc by Marc Jacobs, were relocated to other parts of the women’s floor.

“It’s a dramatic change in the merchandise offering. The goal is to help attract customers we didn’t have an offering for before,” by keeping it fashion forward, making prices generally more accessible and adding offerings, Nordstrom said.

“We anticipate continued improvement in the women’s business in 2013 and expansion of Top Shop in stores,” Nordstrom said. Nordstrom also enhanced its Fashion Rewards program recently to simplify and juice up the benefits, which also helped women’s sales.

Last year, Nordstrom aggressively increased online merchandise, took a more customized approach to entice shoppers, improved the functionality of its digital platforms including search, navigation and checkout, added 360-degree videos on certain product pages, and provided early access online to the anniversary sale. The online merchandise selection expanded by more than 50 percent and attained virtual parity with the full-line store selection, Nordstrom said. Twenty percent of the company’s online volume came from mobile last year.

“Rack, direct and Canada will make up approximately half of our sales in next five years,” Nordstrom said.

During the conference call, some concerns among analysts about merchandise margins arose. Gross margin was 37.7 percent of sales, or flat against last year. Margins have been affected by the continued growth of Rack where merchandise margins are lower but where bottom-line margins are equal to or above Nordstrom full-line stores. Margins have also been impacted by the Fashion Rewards program, though the program generates increased sales and loyalty.

For the year, earnings per diluted share came to $3.56, up 13.4 percent compared to $3.14 for the year before. Net earnings rose 7.7 percent to $735 million from $683 million earned the year before.

Total sales reached $11.8 billion, a 12.1 percent gain compared to $10.5 billion in 2011. Same-store sales increased 7.3 percent.

Nordstrom forecasts a profit of $3.65 to $3.80 per share, same-store sales rising between 3 percent and 5.5 percent and total sales ahead 4.5 to 6.5 percent ahead.