If last quarter is any indication, Nordstrom Inc. continues on track to reach its goal of $20 billion in sales by 2020.
Fueled by strong sales growth, ongoing integrations across selling channels and another successful Anniversary Sale, the Seattle-based department store chain posted second-quarter net earnings that swelled 15.3 percent to $211 million from $183 million in the same period last year.
Total company sales reached $3.6 billion for the quarter ended Aug. 1, which was a 9.2 percent increase compared with net sales of $3.3 billion during the same period in fiscal 2014. Total comparable sales for the second quarter increased 4.9 percent. Last year, Nordstrom generated $13.8 billion in revenues.
Earnings before interest and taxes were $377 million, or 10.5 percent of net sales. The earnings included $51 million (pre-tax and pre-interest expenses) primarily associated with receivables from its credit card transaction. The impact of the Trunk Club acquisition and the ongoing entry into Canada represented a planned incremental reduction to earnings before interest and taxes of $14 million.
Last May, Nordstrom announced its strategic credit card relationship with TD Bank N.A. including the sale of its existing U.S. Visa and private label consumer credit card portfolio. The company also entered into a program agreement with TD, in which it will be entitled to a substantial portion of net revenue generated by the credit card portfolio. After it closes the deal, the retailer expects to receive approximately $1.8 billion, “net of $325 million in debt reduction and transaction costs,” the company said.
In the second quarter, Nordstrom reclassified its receivables to “held for sale” resulting in the reduction of expense. The credit deal is expected to close by the end of the year.
Regarding sales trends, co-president Erik Nordstrom told WWD the best-selling categories last quarter were beauty, including treatment and fragrance; women’s apparel with particular strength in younger fashion labels like Topshop and Madewell; women’s denim generally, and men’s tailored clothing; while watches and handbags did not perform as well.
Topshop recently added seven in-store shops to total 73 inside Nordstrom, with 90 expected by the end of the year, and last month Nordstrom said it will expand its distribution of J. Crew’s Madewell brand to another 15 locations, bringing the total number of Nordstrom doors selling Madewell to 30.
Nordstrom Rack experienced a sales gain of 13 percent to $900 million, which represents “26 consecutive quarters of double-digit growth.” “Nordstrom Rack comparable sales increased 1.7 percent, on top of last year’s increase of 4 percent, consistent with its two-year stacked trend,” the company added.
Nordstrom does not seem to be experiencing some of the woes of other retailers. Sales from international tourists have been declining at Macy’s, Bloomingdale’s, Saks Fifth Avenue and Neiman Marcus, particularly in major cities. But Nordstrom’s Mike Koppel, executive vice president and chief financial officer, said in a conference call, “We haven’t paid particular attention to the amount of tourists. To date, it hasn’t been a discussion point for us.”
In addition, merchandise margins at Nordstrom have been relatively flat this year, indicating the company is not getting any more promotional unlike other retailers. “We are not really a promotional retailer,” said Jamie Nordstrom, executive vice president and president of stores. “We get more focused on service and differentiated product assortment. We think that’s what drives a healthy business over time.” Nordstrom’s position is that it will match the prices of competitors and doesn’t want to be undersold.
Co-president Blake Nordstrom said that Nordstrom’s full-line stores are still the core of the business, though he also said that the Nordstrom Rack outlet chain “continues to be highly productive and gaining market share” and that the business showed improvement in the second quarter over the first quarter. Nordstrom Rack attracted around 4 million customers last year and about 1 million Rack customers started to shop full-line stores or on nordstrom.com. The company expects to end the year with 194 Nordstrom Racks.
Nordstrom’s Trunk Club business will have a full women’s launch in September and has been piloting women’s since the beginning of the year.