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Nordstrom Earnings Call, Third Quarter 2008
Author: Godwin Gwetu
Last Update: 8:04 AM ET November 17 2008


The specialty fashion retailer reported year-to-date net sales of $6.0 billion compared with net sales of $6.3 billion for the equivalent period in fiscal 2007. The nine months period net earnings of $333 million or $1.52 per share compared negatively to net earnings of $503 million or $1.98 per share for the same period last year. The third quarter same store sales decreased 11.1% and the management anticipates full year 2008 EPS in the range of $1.87 to $1.97.

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This summary is based on the third quarter fiscal 2008 earnings call conducted by Nordstrom Inc. (JWN) on November 13, 2008.


President and Director: Blake W. Nordstrom
EVP and CFO: Michael G. Koppel
EVP, Director and President - Stores: Erik B. Nordstrom
EVP, Director and President - Merchandising: Peter E. Nordstrom
Director, IR: Chris Holloway

Key Investor Issues:

- Third quarter EPS retreated 51% to 33 cents versus the year ago period.
- Total quarter-to-quarter sales slipped 8.4% to $1.8 billion.
- During the quarter, the company repurchased 800,000 shares for $26 million.
- Q4 EPS are forecast to be in the range of 35 cents to 45 cents.

Third Quarter Financial Highlights:

The company operated under unprecedented times with customers showing a lack of confidence.

- In mid-September, the financial markets became extremely stressed.
- The management is still focused on the same loyal Nordstrom core customer but many have different needs than they did last year.
- The customers are reportedly shopping less and are making more deliberate purchases.

The management is very focused on the balance of the inventory assortment.

- The merchant teams have the tools and information to analyze the business category by category and to determine where the sweet spots are for price and value.
- The company is working hard to rebalance inventories to where the most demand exists.
- The management is of the opinion that trust and confidence in pricing is critical to building long-term relationships with customers.
- The company proactively monitors the market to make sure it has the best pricing on like items and the management will also honor the price of the competitor if the customer brings it to attention.
- This adds to the mark-downs.

The company made a decision to aggressively use the Nordstrom rewards program to encourage customers to shop.

- On October 24th, the company began offering double points and will continue this offer through the end of the year.
- The management held a triple rewards event in September to encourage shopping at the beginning of the fall season.

Third quarter earnings per diluted share were 33 cents, a 51% decrease from 68 cents in the same period last year.

- There were a few non-comparable items that impact the comparison of the results.
- Last year’s third quarter results included a 9 cents gain from the sale of the Façonnable business.
- This year there were two non-comparable items that increased EPS by a total of 3 cents.
- Firstly, a 6 cents positive adjustment to income tax expense primarily driven by the closure of several tax years under audit.
- Secondly, there was a one-time adjustment to the sales return reserve that negatively impacted sales by $19 million and EPS by approximately 3 cents.
- The third quarter earnings outlook did not include these items because they were not part of the company’s view of ongoing operations.

Total sales declined 8.4% to $1.8 billion and same-store sales declined 11.1% during the quarter.

- Overall, the results in full-line stores continued to be challenging as same-store sales decreased 15.6% in the quarter.
- The strongest relative regional performances in the full-line stores were in the northwest, South, and Midwest.
- The best-performing merchandise divisions were cosmetics and junior women’s apparel.
- Nordstrom Rack continued its positive sales growth, outperforming its off-price competition with the same-store sales increase of 3.6%.
- Sales for the direct segment, which includes the online business, increased 8.5%.

The lower sales and higher mark-down rates pulled Q3 gross profit rate down 332 basis points to 34.3%.

- Buy-in and occupancy costs are approximately one-third of the gross profit rate decline as these are relatively fixed costs.
- The remaining variance was driven by a decrease in merchandise margins as the management responded to slower sales trends and the competitive environment with increased markdowns.
- The company ended the quarter with inventory per square foot 3% below last year.

The SG&A expenses increased $14 million to $567 million and the rate increased 336 basis points to 31.4%.

- The management continues to be focused on rigorously controlling costs which offset $20 million in expenses from new stores and a $29 million increase in bad debt expense.
- During the quarter, the company increased the bad debt reserve in anticipation of a weaker economy and higher unemployment rates.
- The company ended Q3 with a total delinquency rate of 3.2% and net charge-offs of 5.7%, which continue to be some of the lowest delinquency and write-off rates in the credit card industry.
- Finance charges and other income increased $5 million, with 11% growth in receivables offsetting lower interest rates.
- Net interest expense of $33 million was $13 million higher than last year due to changes in the capital structure made in Q4 of last year.
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Sources: Data collected by and from company press releases, filings and corporate websites.
Market data: BATS Exchange. Inc.

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