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Nordstrom Fourth Quarter Earnings Call
Author: Albena Toncheva
Last Update: 4:32 AM EST February 27 2008


The retailer of specialty apparel and accessories reported revenue of $2.51 billion, down 4.4% from $2.63 billion in the previous year, on 0.7% decrease in same store sales. During the quarter, SG&A improved 68 basis points compared to last year, primarily due to lower incentive costs, partially offset by increased bad debt expense related to the company''s credit card business. Nordstrom, anticipating a weak first half for fiscal 2008, expects EPS in the range of $2.75 to $2.90.

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This summary is based on the fourth quarter fiscal 2007 earnings call conducted by Nordstrom Inc. (JWN) on February 25, 2008.

President: Blake Nordstrom
EVP and CFO: Mike Koppel
President of Merchandising: Pete Nordstrom
President of Stores: Erik Nordstrom
Director of IR: Chris Holloway

Key Investors Issues

- The earnings per share were 92 cents versus 89 cents in the previous year.
- Quarterly revenue of $2.51 billion reflects a decrease of 4.4% from last year.
- During the quarter, the firm repurchased 11 million shares for a total of $388 million.
- For Q1, the firm anticipates EPS of 49 cents to 54 cents, on 3% to 5% decline in same store sales.

Fourth Quarter Fiscal 2007 Financial Highlights

Nordstrom reported net earnings of $212 million, or 92 cents per diluted share for the fourth quarter.

For the fourth quarter last year, net earnings and earnings per diluted share were $232 million and 89 cents per share, respectively. The share repurchase activity during 2007 benefited fourth quarter earnings per share by approximately 6 cents. During the fourth quarter, the firm added leverage to its balance sheet, as it moved to a more efficient capital structure. For the fourth quarter, EBIT was $384 million, a 1% decrease compared to last year''s EBIT of $387 million.

Total sales in the fourth quarter were $2.5 billion, a decrease of 4.4% compared to sales of $2.6 billion for the same period in fiscal 2006.

Same-store sales decreased 0.7% for the quarter compared to the company''s approximately flat same-store sales plan. Merchandise categories with performance above the same-store average for the quarter were designer products across categories, accessories, and women''s shoes.

By channel, Full-Line stores fourth quarter comps were negative 2%, Nordstrom Rack comps grew 6% and online stores sales growth was 12%. The strongest performances by geographic region were in the Northwest, South and Midwest. The best performing merchandise divisions were Designer across all categories, accessories and women shoes.

Similar to many other retailers, Nordstrom follows the retail 4-5-4 reporting calendar, which included an extra week in the fourth quarter of fiscal 2006 (the 53rd week) compared to the normal operating calendar of 52 weeks. Excluding the extra week of sales in the fourth quarter of 2006, total sales were approximately flat in the fourth quarter of 2007. The 53rd week is not included in same-store sales calculations.

The gross profit rate for the quarter declined 66 basis points.

The firm continues to realign inventory levels for slower sales trends and as a result experienced higher levels of markdowns. The increase in markdowns was partially offset by leverage in buying expenses, due to lower incentive costs tied to company performance. The firm is comfortable with its yearend inventory position of $47 per square foot, a decrease of 6% compared to the end of 2006. The firm is beginning the 2008 fiscal year with the appropriate level of inventory, but continue to monitor sales closely for any changes in trends.

The SG&A rate improved 68 basis points over prior year.

This was due to reduced incentive costs tied to company performance, which were partially offset by higher provisions for bad debt.

The firmís credit card business has historically contributed 5% to 7% of its annual earnings and is a crucial part of the firmís integrated business model.

The firm strongly believes that its credit card products and service enhance its ability to earn and retain the loyalty of its core customers. However, the company has observed the softening in underlying credit trends that negatively impacted the 2007 earnings per share by approximately 11 cents. Fourth quarter credit results were in line with expectations, as delinquency rates increased 54 basis points year-over-year to approximately 2.6% and write-offs increased to 139 basis points year-over-year to 4.4%. Overall, the credit card portfolio remains high quality, as over 90% of spending in credit cards is by super prime and prime customers, and delinquency trends remain well below the industry average of approximately 4.3%.

The 2007 fourth quarter finance charge and other net income increased $11 million.

This was due to growth in accounts receivable and to the change in the accounting for Visa credit card program. Net interest expense of $30 million was inline with expectations and higher than last year due to increased debt levels.

Total debt at quarter end was $2.5 million which was within the firmís capital structure guidelines.
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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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