Department store retailer strong in Q3, raises outlook

Nordstrom delivered a strong performance in its fiscal third quarter even as a hefty charge related to its Trunk Club business ate into its profit.



Total net sales rose 7.2% to a better-than-expected $3.5 billion from $3.2 billion a year ago, fueled by the shift of the company’s popular anniversary sale to the quarter. Same-store sales increased 2.4%, also more than expected. As it has done in recent past quarters, Nordstrom Rack outpaced the full-priced division, Net sales were up more than 10%, and same-store sales rose nearly 4%.



The department store chain posted a net loss of $10 million, or 6 cents per diluted share, for the quarter, compared with reported net income of $81 million, or 42 cents per diluted share, in the year-ago period. After taking one-time items into account, adjusted net income of $148 million produced per-share adjusted earnings of $0.84, topping the $0.51 per share that investors had expected.



On the operations front, the retailer cut the ratio of its overhead expenses to total revenue by more than two percentage points to 29.6%. The retailer attributed the savings partially to costs associated with last year's sale of its credit card portfolio.



“We've made considerable changes in the way we operate to improve the customer experience while increasing our productivity," said Blake Nordstrom, co-president, Nordstrom. "We are particularly proud of our team's efforts to align inventories and improve our operating efficiencies. These outcomes have positively impacted our operating results."



Third quarter results included a non-cash goodwill impairment of $197 million related to Trunk Club, which Nordstrom acquired in 2014.



“While this business continues to deliver outsized top-line growth, current expectations for future growth and profitability are lower than initial estimates,” the retailer stated. “To further improve the customer experience and better position Trunk Club's business for profitable growth, the company is making a number of operational changes.



The company raised its fiscal year 2016 outlook for adjusted earnings per diluted share. Nordstrom now expects adjusted diluted EPS in the range of $2.85 to $2.95 — compared with the upward adjusted range of $2.60 to $2.75 it provided during its second-quarter earnings release — to incorporate the better-than-expected third quarter results.