Nordstrom Continues Revenue Gains, Net Drop Due to Credit Charge

Nordstrom Inc. reported Thursday that its third-quarter net earnings dropped to $67 million compared with $114 million during the same period in fiscal 2017, largely due to a credit-related charge.

Excluding the estimated after-tax $49 million charge, earnings were relatively flat and slightly exceeded the company’s expectations, reflecting “continued top-line strength” at its full and off-price businesses, the company said.

“We feel optimistic about the holiday season,” copresident Blake Nordstrom said during a conference call. “We worked hard to take friction out of the customer experience. We have managed inventories well throughout the year.”

On the charge, which resulted from some delinquent Nordstrom credit card accounts being erroneously charged higher interest, Nordstrom said, “We identified some cardholders with delinquent accounts being charged higher interest in error,” said Nordstrom. “We estimate that less than 4 percent of Nordstrom cardholders will receive a refund or credit, with most receiving less than $100. We’ve taken action, including the appropriate steps to ensure the problem is addressed and does not happen again. We sincerely apologize to these cardholders. We realize customers and shareholders place a great deal of trust in us, and that’s a responsibility we take seriously. Excluding this charge, our third-quarter earnings were slightly ahead of our expectations.”

Total sales increased 3 percent to $3.75 billion from $3.63 billion a year ago. Comparable sales increased 2.3 percent.

Nordstrom’s digital sales grew 20 percent and have grown to represent 30 percent of the business.

The Nordstrom Rack off-price business exceeded expectations with a comparable sales increase of 5.8 percent in the third quarter in large part driven by nordstrom.com and HauteLook.

At the full-price department stores, Nordstrom’s comparable sales increased 0.4 percent. Men’s sportswear, women’s designer, handbags, dresses and coats performed above average at the stores.

Earnings before interest and taxes were $105 million, or 2.9 percent of net sales, compared with $208 million, or 5.9 percent of net sales, during the same period in fiscal 2017.

At the end of the third quarter, inventory increased 7 percent over the same period last year, reflecting timing shifts associated with the holiday season. Excluding this timing impact, inventory growth was relatively in line with sales growth, the company said.

Nordstrom raised its guidance for the year, projecting total sales at $15.5 billion to $15.6 billion from a previous prediction of $15.4 billion to $15.5 billion. Comparable sales are seen at approximately 2 percent from a prior estimate of 1.5 to 2 percent.

Earnings before interest and taxes are seen reaching $863 million to $888 million, including the impact of the credit-related charge.

Last month, we celebrated the 20th anniversary of nordstrom.com,” Nordstrom noted. “This business has grown to roughly 2.5 million visitors per day, ranking among the top 10 e-commerce retailers in the United States.

Citing other highlights of the business, Nordstrom said:

Nordstromrack.com and HauteLook are on track to exceed $1 billion in sales this year.

• Trunk Club has delivered sales growth of nearly 50 percent year-to-date, demonstrating successful efforts to improve the customer offer.

• The Canada business grew with the opening of three Racks in Toronto, Edmonton and Ottawa, bringing the total in Canada to six. They’re performing “ahead of our expectations.”

Nordstrom didn’t comment much on the men’s store in Manhattan that opened last April, saying, “We’re building on our initial learnings as we focus on expanding our presence in this premier retail market with our flagship women’s store opening planned in fall 2019.” He said the company has been learning about seasonality and the rhythm of the business and that he is “pleased with customer feedback.”

In other growth maneuvers, last month, Nordstrom introduced “Get It Fast,” a feature that gives customers a “significantly expanded view of merchandise selection that’s available next-day in the Los Angeles market. Since the launch, we have seen a 50 percent lift in buy-online and pick-up-in-store,” Nordstrom said. “This is a great example of how we’re leveraging our digital and physical capabilities to increase convenience for our customers. Enabled by our supply chain investments, we have potential to increase selection by four to seven times for product available same, or next-day in a given market.”

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