Nordstrom Releases Fourth Quarter Failure, Updates Company Structure as Sole CEO

Nordstrom Inc. on Tuesday reported earnings per share for the fourth quarter ended Feb. 1 of $1.23, including a charge of 19 cents, which missed Wall Street expectations by 6 cents.

The company’s revenue of $4.4 billion marked a 1.3% improvement on the back of growth in Nordstrom’s Full-Price and Off-Price businesses. Revenue was below analysts’ estimates of $120 million.

The company also announced that it would transition from its co-chairman structure to a single CEO, with Erik Nordstrom filling the role. Pete Nordstrom has been named president of Nordstrom Inc. and chief brand officer. The new titles reflect their current and continuing responsibilities. Both Erik and Pete Nordstrom will remain on the company’s board of directors.

Erik Nordstrom said, “These titles help clarify our respective roles as we strive to maximize our impact both as individual leaders and as a team. Pete and I continue to be partners in ensuring Nordstrom’s success, and we are both focused on executing our long-term plan. We look forward to continuing to work with our Board of Directors to realize our shared vision for the future of Nordstrom.

The company’s 19-cent fourth-quarter charge, which was not reflected in its prior outlook, was primarily related to the integration of Trunk Club as part of Nordstrom’s go-to-market strategy, in addition to refinancing costs debt.

For fiscal 2019, earnings per diluted share was $3.18. Excluding charges of $0.19, earnings per diluted share were in line with the company’s prior guidance of $3.30 to $3.50. Net sales decreased by 2.2% compared to fiscal 2018, in line with expectations.

“Through our customer focus, inventory efficiency and spend discipline, we improved full-price and off-price sales trends, and increased profitability in the second half of the year. Our 2019 results reflect the accelerated deployment of our go-to-market strategy, strong Nordstrom Rack execution, improved commodity margins and the achievement of expense savings 10% higher than our guidance,” said said Erik Nordstrom, CEO of Nordstrom Inc. “As we move forward, we are further leveraging digital capabilities and adapting our go-to-market strategy to drive sales and profit growth. The dynamics of our investments and our market strategy allow us to get closer to our customers, transforming the way we serve them. »

Market strategy
Nordstrom’s market strategy leverages physical and digital assets to provide customers with a greater selection of next-day merchandise and more convenient access to services. In 2019, the company accelerated its strategy in five main markets — New York, Los Angeles, Chicago, Dallas and San Francisco – resulting in outsized customer engagement and an 80 basis point sales trend increase over other markets in the fourth quarter.

Based on the positive results, Nordstrom will further expand its market strategy through several key initiatives, including:

  • Expanding to five additional markets – Philadelphia, Washington DC, Boston, Seattle and Toronto – for a total of 10 markets, which account for more than half of the company’s sales;
  • Added convenience with additional Nordstrom local service hubs in addition to express order pick-up, returns, and change services at over 50 Nordstrom racks;
  • Launch a dedicated e-commerce in Canada to enable a seamless shopping experience in stores and online;
  • Strengthening its supply chain network to improve delivery speed to the West Coast, which accounts for 40% of customers; and
  • Integrate Trunk Club into full-line Nordstrom stores and to create a cohesive style offering across Nordstrom and gain efficiencies.

Board and Senior Management Update
The company today announced changes to its board of directors. Current board members Kevin Turner and Gordon Smith have elected not to seek re-election to the board when their respective terms expire at the company’s annual meeting of shareholders on May 20. 2020. The Board is working with an external executive search firm for director nominees to fill their seats.

In addition, the Board announced planned changes aimed at improving its corporate governance. This will include reducing the maximum size of the Board from 11 to 10 members over the next two years and introducing a 10-year term limit for independent directors.

“Kevin and Gordon have each made invaluable contributions to our Board of Directors, including through their important roles as chairs of the Technology and Corporate Governance and Nominating Committees, respectively,” said Brad Smith, Chairman of the Nordstrom’s Board of Directors.

Summary of the fourth quarter

  • Net income for the fourth quarter was $193 million, compared to $248 million in the same period of fiscal 2018. Fiscal 2019 included charges of $29 million, after tax, representing primarily non-cash asset write-downs resulting from the integration of Trunk into debt refinancing costs.
  • Earnings before interest and taxes (“EBIT”) were $299 million, or 6.7% of net sales, compared to $333 million, or 7.6% of net sales for the same period last year. 2018. Excluding integration charges of $32 million, the EBIT margin decreased slightly compared to the prior year.
  • In Full-Price, net sales increased 1.0%. In Off-Price, net sales increased by 1.8%. Digital sales increased by 9% and accounted for 35% of sales. The withdrawal of online orders contributed more than half of the growth in full-price digital sales.
  • Gross margin, as a percentage of net sales, of 35% decreased 9 basis points compared to the same period in fiscal 2018. This was mainly due to higher costs related to the growth of the loyalty program and expected occupancy costs associated with the New York flagship store. , partially offset by higher merchandise margins. Closing inventories fell 2.9% from a year ago, marking four straight quarters of sales growing faster than inventories.
  • Selling, general and administrative (“SG&A”) expenses, as a percentage of net sales, of 30.5% increased by 70 basis points compared to the same period in fiscal 2018. Excluding integration charges, the SG&A rate remained stable, reflecting realized expense savings of approximately $55 million from ongoing productivity initiatives.

Summary of the full year

  • Net income for the full year was $496 million, compared to $564 million in fiscal 2018. Fiscal 2019 included integration charges and debt refinancing costs of $29 million, after tax. Net income for fiscal 2018 included a credit-related charge of $49 million, after tax.
  • EBIT was $784 million, or 5.2% of net sales, compared to $837 million, or 5.4% of net sales, in fiscal 2018. Excluding integration charges of $32 million in 2019 and credit-related charges of $72 million in 2018, EBIT margin deleveraged by approximately 50 basis points.
  • In Full-Price, net sales fell 3.5%. In Off-Price, net sales increased 0.2%. Nordstrom successfully executed plans to improve sales trends during the year through loyalty, digital marketing and merchandising initiatives. Digital sales grew 7% and accounted for 33% of sales.
  • Gross margin, as a percentage of net sales, of 34.4% was flat compared to fiscal 2018. This reflects higher merchandise margins, offset by higher costs related to the growth of the loyalty program and expected occupancy costs associated with the New York flagship store.
  • SG&A charges, as a percentage of net sales, of 31.8% increased 32 basis points from fiscal 2018. Excluding integration charges in 2019 and a credit-related charge in 2018, the SG&A rate increased increased by approximately 60 basis points, due to lower volume fixed cost deleveraging. Nordstrom achieved annual spend savings of $225 million, beating the high end of its plan by more than 10% and contributing to a reduction in dollar spend from last year.

Summary of the financial situation for the full year

  • Operating cash flow exceeded $1 billion for the eleventh consecutive year;
  • The company’s debt leverage ratio, excluding charges, is in line with expectations; and
  • During the year, the company repurchased 4.1 million common shares for $186 million. A total of $707 million of capacity remains available under its existing stock repurchase authorization.

Outlook for fiscal year 2020
Nordstrom remains committed to increasing total shareholder return through three financial objectives: gaining market share; increase profitability and return on invested capital; and maintain a disciplined allocation of capital. The company provided financial expectations for fiscal year 2020, which do not include any potential impact from the current coronavirus situation, as follows:

Extension update
Nordstrom has announced plans to open the following stores in fiscal 2020:

Photos/Graphics courtesy of Nordstrom