Nordstrom shows digital strength amid difficult Q4

Increased expenses and shrinking margins hurt Nordstrom profitability in the fourth quarter, but the leading department store and off-price retailer delivered on the e-commerce front.



Nordstrom said sales for the fourth quarter increased 5.2% to $4.1 billion and same store sales increased 1%. The company’s full price stores and Nordstrom.com grew sales 0.7% and same stores sales increased 0.2%. However, the growth was largely driven by Nordstrom.com sales which increased 11% and offset a 3.2% decline at physical stores.



The physical versus digital phenomenon was more pronounced at Nordstrom Rack stores and Nordstromrack.com/HauteLook. Total sales increased 12% and comparable sales increased 3.6%, but a 50% increase in Nordstromrack.com/HauteLook net sales help offset a 3% decline in physical same store sales.



Nordstrom opened its third fulfillment center in Elizabethtown, Pennsylvania, strategically located within two-day delivery of approximately half the U.S. population



Profits for the period declined to $180 million compared to $255 million the prior year and earnings per share were $1, well below $1.32 record the prior year, and including asset impairment charges of 17 cents that were not included in the company’s original guidance.



The source of the downturn was a significant compression of gross margins due to what the company said were increased markdowns from lower than planned sales and in response to an elevated promotional environment during the holiday season. As result, gross profit as a percentage of net sales contracted 184 basis points to 34.8%.



Meanwhile, expenses as a percent of net sales increased 50 basis points, excluding asset impairment charges, to 28.2%. The company also said its inventory growth of 12% exceeded sales growth of 5.2%, prompting it to incorporate a continued promotional environment into its operating plans for 2016.



Those plans envision a net sales increase in the range of 3.5% to 5.5% and same-store sales flat to up 2%. Most of the sales growth will come from the addition of 20 new Rack stores and three full line stores in 2016, building on the 121 full price stores and 194 Rack stores in operation at the end of the year.