This summary is based on the third quarter fiscal 2008 earnings call conducted by Nordstrom Inc. (JWN) on November 13, 2008.
Management:
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President, Director: Blake W. Nordstrom
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Chief Financial Officer, Executive Vice President: Michael G. Koppel
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Executive Vice President, President - Stores, Director: Erik B. Nordstrom
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Executive Vice President and President - Merchandising, Director: Peter E. Nordstrom
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Director, Investor Relations: Chris Holloway
Key Investors Issues
- Earnings were $71 million or 33 cents a share, a 51% decrease from $166 million or 68 cents per share in 2007.
- Total sales declined 8.4% to $1.8 billion from $1.97 billion in the prior year.
Third Quarter Highlights
Earnings were $71 million or 33 cents a share, a 51% decrease from $166 million or 68 cents per share in the same period last year as the firm responded to slower sales trends and the competitive environment with increased markdowns.
- Total sales declined 8.4% to $1.8 billion from $1.97 billion in the prior year as same-store sales declined 11.1%.
- Overall 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, and 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 combination of lower sales and higher mark-down rates resulted in the gross profit rate decreasing 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 while the remaining variance was driven by a decrease in merchandise margins.
- The firm 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.
SG&A expenses increased $14 million to $567 million and the rate increased 336 basis points to 31.4%.
- The firm increased the bad debt reserve in anticipation of a weaker economy and higher unemployment rates.
- It ended the third quarter 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 the fourth quarter of last year.
The firm is currently at the peak seasonal borrowing period and ended the quarter with cash of $68 million and short-term borrowings of $252 million.
- Despite the strain in the credit markets, it recently increased its short-term borrowing capacity by $150 million.
- In total, the firm has $950 million of short-term borrowing capacity and expect borrowings to be minimal at year-end.
- The firm has long-term debt of $250 million coming due in January 2009 and no additional maturities until a $350 million note expires in April of 2010.
Strategic Initiatives:
- The firm remains focused on the balance of inventory assortment.
- 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.
- It is working hard to rebalance inventories to where the most demand exists.
- In addition to what it can do with its own private label merchandise, vendor partners are motivated to stimulate sales as well and the firm is passing those savings on to customers.
The firm has made changes beyond merchandise, including the decision to aggressively use the Nordstrom rewards program to encourage customers to shop with Nordstrom.
- The firm suspended the share repurchase program until economic conditions improve.
- It has reduced net capital expenditures to approximately $350 million in 2009 from the initial plan of $560 million.
- The firm had three full-line store projects originally scheduled to open in 2009 be delayed by developers and expect to experience more delays and changes to the new store opening plans.
- It now expects to relocate one full-line store and open three new full-line stores in 2009, and open four to five new full-line stores in 2010.
Fourth Quarter 2008 Outlook:
- Same-store sales are expected to decrease 13% to 16%.
- Earnings per share will be 35 cents to 45 cents.
Key questions and answers from the third quarter earnings call conducted by Nordstrom Inc. (JWN) on November 13, 2008.
