This summary is based on the third quarter fiscal 2007 earnings call conducted by Nordstrom Inc. (JWN: chart) on November 19, 2007.

President: Blake Nordstrom
EVP, CFO: Mike Koppel
President of Merchandising: Pete Nordstrom
President of Stores: Erik Nordstrom
Investor Relations: Chris Holloway

Key Investors Issues

- The earnings were 68 cents a share compared to 52 cents a share in the prior year.
- Quarterly revenue grew from $1.87 billion in previous year to $1.97 billion.
- The company opened three stores in the third quarter.
- The board has authorized an additional $1 billion of share repurchase on top of the $1.5 billion announced in August.

Third Quarter Fiscal 2007 Financial Highlights

For the third quarter, earnings per share were 68 cents.

Excluding the gain on the sale of Faconnable business, adjusted earnings per share were 59 cents, an increase of 13% compared to last year’s 52 cents. The adjusted pre-tax margin was 12.1% for the quarter, an improvement of 25 basis points over the third quarter of 2006. Adjusted net earnings for the quarter rose 7% to $145 million compared to $136 million last year. The management is encouraged that its operating model is working and that it was able to expand profit margins in a slower sales environment.

The firm surpassed its revised third quarter expectations by 6 cents. This was primarily driven by two factors.
- The firm received markdown allowances from vendors earlier than expected, adding approximately 2 cents to 3 cents.
- The firm had lower incentive costs driven primarily by the decline in its stock price during the quarter, which impacted earnings per share by approximately 2 cents.

Total sales for the quarter grew 5.3% to $2 billion and year-to-date sales have increased 6.5% to $6.3 billion.

Same-store sales were 2.2% in the quarter, which was within the revised low to mid single-digit plan. Year-to-date same-store sales have increased 5.8%.

In the full-line stores, the strongest regional performances for the quarter were in the South, Midwest and Northwest regions. Major merchandise categories performing ahead of the full-line store average for the quarter were the firm’s designer offering across categories as well as women’s accessories and men’s apparel divisions.

Nordstrom Rack division had same-store sales of 7.8% for the quarter, while the direct business grew 10.1%.

Gross profit margin for the quarter decreased 38 basis points from last year’s rate.

The company entered the third quarter with inventory levels above plan and experienced higher markdowns during the quarter as it moved to realign inventory levels with slower sales trend. The increase in markdowns was partially offset by higher than expected vendor allowances and lower incentive costs in buying and occupancy expenses.

The SG&A rate decreased 70 basis points over prior year.

This was due to reduced performance-based incentives, which was partially offset by provisions for bad debt. The company’s financials reflect higher costs over previous years due to a change in the way the firm accounts for its credit business. In addition to the accounting change, the company has observed an increase in delinquency rates. The firm’s delinquency rates remain well below industry rates and are consistent with rates that it experienced prior to the bankruptcy law change in 2005. The firm is confident in the quality of its overall credit card portfolio as over 90% of credit card spending is done by prime or super prime customers.

The company opened three stores in the third quarter in Natick, Massachusetts, Novi, Michigan, and Denver, Colorado and a Nordstrom Rack store in Tukwila, Washington. These stores have generated a great response from customers and to date have exceeded expectations.

During the quarter, the firm completed the sale of its Faconnable subsidiary and realized an after-tax gain of $20.9 million, or 9 cents in diluted earnings per share. Other income was flat for the quarter compared to last year.

Excluding Faconnable, the total ending adjusted inventory per square foot was approximately 2% higher than last year.

This is in line with the 2.2% comp increase for the quarter. The management is focused on tightly managing the inventory and made good progress since the end of the second quarter when inventories were 7% higher per square foot than previous year. The firm’s merchant team worked well with the vendor partners to adjust receipt flow and with Rack division to efficiently move excess inventories. Although the inventory per square foot remained higher than last year, the majority of the increase is planned and continues to support the growth of the designer business in apparel, accessories and shoes. The firm will continue to monitor sales trends to ensure that its inventories stay at appropriate levels.