Nordstrom Reports Second Quarter 2012 Earnings

Direct Sales Up 40%, Company Announces Plans for Accelerated Rack Growth

SEATTLE--(BUSINESS WIRE)--Aug. 9, 2012-- Nordstrom, Inc. (NYSE: JWN) today reported its results for the second quarter, which reflected a shift in timing of the Anniversary Sale event with one week of the event moving into the fiscal third quarter. Net earnings were $156 million, or $0.75 per diluted share, for the second quarter ended July 28, 2012, compared with net earnings of $175 million, $0.80 per diluted share, for the same quarter last year.

The Anniversary Sale is historically the Company’s largest sale of the year and started one week later in July relative to last year. The Company expected the event shift to cause an unfavorable comparison in the second quarter, offset by a favorable impact in the third quarter. Second quarter sales and Anniversary Sale results through the end of July exceeded Company expectations. Second quarter same-store sales increased 4.5 percent compared with the same period in fiscal 2011. Net sales in the second quarter were $2.92 billion, an increase of 7.4 percent compared with net sales of $2.72 billion during the same period in fiscal 2011.

SECOND QUARTER SUMMARY

Nordstrom’s second quarter performance reflected top-line strength consistent with the Company’s growth strategy to elevate the customer experience and innovate through ongoing investments.

• Nordstrom net sales, which include results from the full-line and Direct businesses, increased $139 million, or 6.1 percent, compared with the same period in fiscal 2011. Same-store sales increased 4.9 percent. Top-performing merchandise categories included Handbags, Women’s Shoes and Cosmetics.
• Full-line same-store sales increased 1.1 percent compared with the same period in fiscal 2011. The South and Midwest regions were the top-performing geographic areas relative to the second quarter of 2011.
• The Direct channel continued to show strong sales growth with an increase of 40 percent, significantly outpacing the overall Company performance and reflecting the Company’s ongoing initiatives in e-commerce.
• Nordstrom Rack, which opened six stores during the first half of the year, demonstrated continued sales growth in the second quarter with increases in net sales of 18.9 percent and same-store sales of 7.7 percent.
• Gross profit, as a percentage of net sales, decreased 98 basis points compared with last year’s second quarter. The decline primarily reflected a combination of the Anniversary Sale shift, enhancements made to the Fashion Rewards program and a reduction in shipping revenue from the launch of free shipping and free returns online that was introduced in the third quarter of 2011.
• Retail selling, general and administrative expenses, as a percentage of net sales, increased 61 basis points compared with last year’s second quarter. The increase was primarily due to the Company’s investments in various e-commerce and technology initiatives to improve the customer experience in stores and online.
• The Credit segment continued to demonstrate improving trends in its overall performance. Customer payment rates continued to improve. Annualized net write-offs were 4.8 percent of average credit card receivables during the quarter, down from 7.2 percent in the second quarter of 2011. Delinquencies as a percentage of credit card receivables at the end of the second quarter were 1.9 percent, down from 2.7 percent at the end of the second quarter of 2011.
• Earnings before interest and taxes were $290 million, compared with $320 million in last year’s second quarter, with the decline due to the Anniversary event timing shift and the Company’s planned investments in e-commerce and technology.
• Return on invested capital (ROIC) for the 12 months ended July 28, 2012, was 12.7 percent, compared with 13.8 percent achieved in the prior 12-month period, exceeding our expectations. The Company anticipates that ROIC for fiscal 2012 will exceed ROIC for fiscal 2011. A reconciliation of this non-GAAP financial measure to the closest GAAP measure is included below.
• During the quarter, the Company repurchased approximately 7.5 million of its shares for a total of $373 million. A total of $696 million remains under its existing share repurchase authorization. The actual number and timing of future share repurchases, if any, will be subject to market and economic conditions and applicable Securities and Exchange Commission rules.

EXPANSION UPDATE

Given the strong performance of the Nordstrom Rack business and availability of quality locations, the Company is planning to further accelerate the expansion of this business. Over the last four years, Nordstrom has more than doubled the number of Nordstrom Rack locations to its current total of 110 stores. Its initial plan for 15 store openings in 2012 remains and will increase to 24 openings in 2013. The Company plans to have over 230 Rack stores by the end of 2016.

The Company earlier announced a location for its first full-line store in New York City, with the opening expected in 2018.

Nordstrom opened the following stores in the second quarter of 2012:

FISCAL YEAR 2012 OUTLOOK

Nordstrom is increasing its expected earnings per diluted share to be between $3.40 and $3.50 for fiscal year 2012. This outlook does not include the impact of any future share repurchases. Due to the impact of the timing shift of the Anniversary event, the Company is providing its view of directional quarterly trends of several key line items, relative to last year:

The Company’s revised expectations for fiscal 2012 are as follows:

CONFERENCE CALL INFORMATION

The Company’s senior management will host a conference call to discuss second quarter 2012 results at 4:45 p.m. Eastern Daylight Time today. To listen to the live call online and view the speakers’ slides, visit the Investor Relations section of the Company’s corporate website at http://investor.nordstrom.com. An archived webcast with the speakers’ slides will be available in the webcasts section for one year. Interested parties may also dial 415-228-4850 (passcode: NORD). A telephone replay will be available beginning approximately one hour after the conclusion of the call by dialing 402-220-0283 (passcode: 6673) until the close of business on August 16, 2012.

ABOUT NORDSTROM

Nordstrom, Inc. is one of the nation’s leading fashion specialty retailers. Founded in 1901 as a shoe store in Seattle, today Nordstrom operates 231 stores in 31 states, including 117 full-line stores, 110 Nordstrom Racks, two Jeffrey boutiques, one treasure&bond store and one clearance store. Nordstrom also serves customers through Nordstrom.com and through its catalogs. Additionally, the Company operates in the online private sale marketplace through its subsidiary HauteLook. Nordstrom, Inc.’s common stock is publicly traded on the NYSE under the symbol JWN.

Certain statements in this news release contain “forward-looking” information (as defined in the Private Securities Litigation Reform Act of 1995) that involve risks and uncertainties, including, but not limited to, anticipated financial outlook for the fiscal year ending February 2, 2013 and its second half, anticipated annual same-store sales rate, anticipated Return on Invested Capital and trends in our operations. Such statements are based upon the current beliefs and expectations of the Company’s management and are subject to significant risks and uncertainties. Actual future results may differ materially from historical results or current expectations depending upon factors including, but not limited to: the impact of economic and market conditions and the resultant impact on consumer spending patterns; our ability to respond to the business environment, fashion trends and consumer preferences, including changing expectations of service and experience in stores and online; effective inventory management; successful execution of our growth strategy, including possible expansion into new markets, technological investments and acquisitions, our ability to realize the anticipated benefits from such acquisitions, and the timely completion of construction associated with newly planned stores, relocations and remodels, all of which may be impacted by the financial health of third parties; our ability to manage the change in our business/financial model as we increase our investment in e-commerce and our online business; our ability to maintain relationships with our employees and to effectively attract, develop and retain our future leaders; successful execution of our multi-channel strategy; our compliance with applicable banking and related laws and regulations impacting our ability to extend credit to our customers; impact of the current regulatory environment and financial system and health care reforms; the impact of any systems failures, cybersecurity and/or security breaches, including any security breaches that result in the theft, transfer or unauthorized disclosure of customer, employee or company information or our compliance with information security and privacy laws and regulations in the event of such an incident; our compliance with employment laws and regulations and other laws and regulations applicable to us, including the outcome of claims and litigation and resolution of tax matters; compliance with debt covenants and availability and cost of credit; our ability to safeguard our brand and reputation; successful execution of our information technology strategy; our ability to maintain our relationships with vendors; trends in personal bankruptcies and bad debt write-offs; changes in interest rates; efficient and proper allocation of our capital resources; weather conditions, natural disasters, health hazards or other market disruptions, or the prospects of these events and the impact on consumer spending patterns; disruptions in our supply chain; the geographic locations of our stores; the effectiveness of planned advertising, marketing and promotional campaigns; our ability to control costs; and the timing and amounts of share repurchases by the company, if any, or any share issuances by the company, including issuances associated with option exercises or other matters. Our SEC reports, including our Form 10-K for the fiscal year ended January 28, 2012, and our Form 10-Q for the fiscal quarter ended April 28, 2012, contain other information on these and other factors that could affect our financial results and cause actual results to differ materially from any forward-looking information we may provide. The company undertakes no obligation to update or revise any forward-looking statements to reflect subsequent events, new information or future circumstances.

¹Capitalized operating leases is our best estimate of the asset base we would record for our leases that are classified as operating if they had met the criteria for a capital lease, or we purchased the property. Asset base is calculated as described in footnote 5 below.

²Based upon our effective tax rate multiplied by the net operating profit for the 12 fiscal months ended July 28, 2012 and July 30, 2011.

³Based upon the trailing 12-month average.

⁴Based upon the trailing 12-month average for accounts payable, accrued salaries, wages and related benefits, and other current liabilities.

⁵Based upon the trailing 12-month average of the monthly asset base, which is calculated as the trailing 12-months rent expense multiplied by eight. The multiple of eight times rent expense is a commonly used method of estimating the asset base we would record for our capitalized operating leases described in footnote 1.

• Adjusted Debt is not exact, but rather our best estimate of the total company debt we would hold if we had purchased the property and issued debt associated with our operating leases;
• EBITDAR does not reflect our cash expenditures, or future requirements for capital expenditures or contractual commitments, including leases, or the cash requirements necessary to service interest or principal payments on our debt; and
• Other companies in our industry may calculate Adjusted Debt to EBITDAR differently than we do, limiting its usefulness as a comparative measure.

¹The components of Adjusted Debt are as of July 28, 2012 and July 30, 2011, while the components of EBITDAR are for the 12 months ended July 28, 2012 and July 30, 2011.

²The multiple of eight times rent expense used to calculate Adjusted Debt is a commonly used method of estimating the debt we would record for our leases that are classified as operating if they had met the criteria for a capital lease, or we had purchased the property.

• Free Cash Flow does not necessarily represent funds available for discretionary use and is not necessarily a measure of our ability to fund our cash needs; and
• Other companies in our industry may calculate Free Cash Flow differently than we do, limiting its usefulness as a comparative measure.

Source: Nordstrom, Inc.

Nordstrom, Inc.
INVESTOR CONTACT: Rob Campbell, 206-233-6550
MEDIA CONTACT: Colin Johnson, 206-303-3036