After struggling for a long time, the retail industry has benefited from some signs of an imminent rebound. High-end department store Nordstrom (NYSE: JWN) gave investors solid performance last quarter, and coming into Thursday's third-quarter financial report, Nordstrom investors wanted to see continued progress in boosting the company's top line and increasing its efficiency to produce greater profits. Nordstrom dramatically exceeded investor expectations, and despite a sizable charge related to its Trunk Club business, Nordstrom's performance led to greater optimism among shareholders. Let's look more closely at Nordstrom's results to see how it's doing as it moves into its key holiday season.
Nordstrom keeps building momentum
Nordstrom's third-quarter results were extremely strong. Revenue of $3.54 billion was up more than 6% from year-earlier figures, finishing ahead of the $3.48 billion consensus forecast among those following the stock. On a GAAP basis, Nordstrom posted a loss of $10 million, but 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 to see.
Looking more closely at the report, Nordstrom made an even stronger recovery than it did last quarter. Comparable sales rose, climbing 2.4%. Admittedly, a sizable portion of this gain was from having the key Anniversary Sale at Nordstrom in this year's third quarter rather than last year's second quarter. But Nordstrom said that combining the second and third quarters, comps were still up slightly by 0.4%.
Growth in comps for the quarter were up 0.9% in the full-line Nordstrom stores and website, combined with Trunk Club. Nordstrom said that women's and men's apparel were the two best performing segments, and geographically, the western U.S. stood out as the dominant region from a performance standpoint.
As we've seen in past quarters, the Nordstrom Rack discount concept outpaced its namesake counterpart. Net sales were up more than 10%, and comparable sales climbed almost 4% in incorporating both Nordstrom Rack store locations and the brand's associated websites. For the discount arena, the eastern U.S. was the best performing region.
More good news came from the operational front. Nordstrom managed to cut the ratio of its overhead expenses to total revenue by more than two percentage points to 29.6%. The retailer attributed the savings to costs associated with last year's sale of its credit card portfolio, and the later Anniversary Sale also helped. Nordstrom's rewards program also continued to gain in popularities, with 45% of sales coming from customers who are part of the program and 40% more customers enrolled than were part of the program a year ago.
What's ahead for Nordstrom?
Nordstrom co-president Blake Nordstrom expressed his happiness at the retailer's performance. "We've made considerable changes in the way we operate," Nordstrom said, "to improve the customer experience while increasing our productivity." The co-president also noted that efforts to be more efficient and to manage inventory more effectively have paid off in better results.
Investors were also glad to see that Nordstrom once again boosted its guidance for the fiscal year. On the sales front, Nordstrom didn't make a major change, narrowing its previous range to project flat comparable sales. However, after adjusting for its impairment charge, Nordstrom boosted its earnings guidance by between $0.20 and $0.25 per share, setting a new range of $2.85 to $2.95 per share on an adjusted basis.
Nordstrom also continued to expand aggressively. Three new full-line Nordstrom stores opened during the quarter, including one in Austin and two in Toronto. Nordstrom Rack saw even more dramatic expansion, with 17 different locations opening between August and October. That made the quarter the busiest so far in the fiscal year.
Nordstrom investors were ecstatic about the results, sending the stock up by 9% in after-hours trading following the announcement. Combined with 7% gains during the regular session before the results were released, that's a huge move for the stock. Yet the strong sales and earnings performance was also exactly what investors wanted to see going into the key holiday season for the high-end retailer.
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