Nordstrom Conference Call Summary
Nordstrom (NYSE: JWN) on Friday reported its first quarter earnings.
Shares of the company are up 14.73 percent or $9.06 per share to $70.55.
Below are some key takeaways from its conference call:
Blake Nordstrom, President of Nordstrom
• Our first quarter earnings performance was above our expectations. Comparable sales improved in each month of the quarter highlighted by the continued outside growth of our
online business and accelerating sales trends in the Rack. This was partly offset by ongoing softness in full-line store sales consistent with what we've experienced in 2013.
• We continue to focus on the execution of our customer strategy, whether in-store or online, full price or off price. At its core, it's about providing a superior customer experience with our investments and efforts directed toward one Nordstrom approach that crates synergies and leverages shared assets and capabilities across all channels.
• An example of this is our launch last week of the Nordstrom Rack e-commerce site and the associated mobile app; we've stated for some time our desire to be wherever our customers want us to be. Our multi-year expansion of Rack stores, which include 10 openings in the first quarter, is giving us increasing relevance with more customers looking for great fashion at great prices.
• Our HauteLook acquisition several years ago, which now has over 17 million members, has enhanced our e-commerce capabilities. Now, we're combining forces to provide a powerful platform for elevating the customer experience in the online off-price segment.
• In addition, we have an outstanding team of Nordstrom employees that manage and execute our credit business extremely well. That said, the credit environment has evolved, such that today, we believe we can pursue an arrangement that allows us to maintain and enhance our customer focus, while gaining greater financial flexibility through the potential sale of our credit receivables.
• We anticipate any partnership to have a minimal impact on existing operations and jobs. In conclusion, we feel encouraged by the progress we're making, we're strong in our conviction as ever about our customer strategy and the investments we're making to support it and we look forward to continued progress throughout the year.
Mike Koppel, Executive Vice President and Chief Financial Officer
• In today's rapidly changing environment, we are uniquely positioned to serve customers through multiple touch points, whether it's in-store or online, full price or off-price. This is enabled through ongoing investments in all our channels and more importantly, due to synergies across channels.
• Through these synergies, we are differentiated in our ability to better serve our existing customers and to attract new customers by creating a seamless shopping experience.
• Now let's turn to our financial performance for the first quarter. Our earnings per diluted share of $0.72 were above our outlook of $0.60 to $0.70 that we provided at the beginning of the year. We delivered total sales growth of 6.8% over last year with comparable sales increase of 3.9%.
• We continue to be pleased with our inventory performance, ending the quarter with inventory that is current and on-plan. On a square footage basis, inventory growth of 10% over last year outpaced sales growth of roughly 4%, primarily due to increased pack and hold inventory to fuel Racks growth, planned increases and well-performing merchandise categories and the buildup of inventory related to the NordstromRack.com launch.
• On the expense side, we demonstrated consistent execution driving an improvement of 40 basis points in SG&A rate over last year. This improvement reflected lower variable costs in addition to overhead expense leverage on higher sales volume.
• Next, I'd like to add some color on our long-term growth strategy. As we previously shared with you, we plan to invest $3.9 billion in capital over the next five years as we focus on serving more customers through store and online growth. An important element is our technology investments, which represent $1.2 billion or 30% of our capital plan.
• Approximately 40% of our technology capital relates to infrastructure to support our growth plans and to facilitate enterprise-wide synergies. This encompasses systems to support merchandising, Canada, Rack store growth and marketing.
• Another 40% is planned in support of our online growth, including expansion of our fulfillment network to increase speed of delivery and furthering our customers' mobile and personalization experience. The remaining 20% is focused on increasing our relevance in stores with enhanced tools for our salespeople, such as our new texting platform and point-of-sale solutions.
• We'll provide additional communication once this exploration process is concluded. I'd like to wrap-up by providing a few comments on our 2014 outlook. We reiterate our earnings per diluted share outlook of $3.75 to $3.90 per share, which incorporates our first quarter results, including the full-year impact of share repurchases. Our top-line expectations are unchanged with total sales growth of 5.5% to 7.5% and a comparable sales increase of 2% to 4%.
• Gross profit rate is expected to decrease 30 basis points to 50 basis points over last year, compared with prior outlook's decrease of 10 basis points to 30 basis points. This adjustment reflects current performance and assumptions around the promotional environment in the near term. As always, we look forward to providing updates on our progress throughout this year.
• Blake Nordstrom: NordstromRack.com built on the strengths of both HauteLook and the Rack. It involves the integration of talent, combining the e-commerce expertise of
HauteLook, which developed the platform for the site, and the merchant expertise of the Rack.
• Blake Nordstrom: It includes one of the largest merchandise offerings in the online off-price segment that encourages shopping a limited time flash sale event, side-by-side with a persistent selection of off-price product. It allows merchandise to be shipped faster than most off-price competitors, enabled by our new fulfillment center shared by Rack and HauteLook.
• Blake Nordstrom: Finally, it accommodates easy returns through the mail or at any Rack location, a capability we added in 2013. Concurrent with this is the launch of the associated NordstromRack.com app. Its functionality, which enables a single login, shared shopping cart and streamlined checkout process reflects our strategic focus on mobile enhancing the customer experience that we will continue to build on as we go forward.
• Blake Nordstrom: As you can imagine, we're excited about NordstromRack.com and its ability to serve customers on their terms. Leveraging the many assets and capabilities
within our company, in this case, things like people, product, technology, stores and supply chain to provide a superior seamless shopping experience is something we'll see more from us in the future.
• Blake Nordstrom: Again we're only a week old here, and there's a lot of learning in front of us. We are committed to expanding the merchandise offering as we learn more
about what our customers want online, and transitioning over time to a more consistent offering relative to our Rack stores. We're off to a good start and we'll keep you informed of our progress.
• Mike Koppel: The launch of NordstromRack.com, which is integrated with HauteLook's online and mobile experience, is a great example of this. We are encouraged with the opportunities ahead to further maximize our customers' experience through the synergies created by our ongoing investments in stores, technology, marketing and supply chain.
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