Nordstrom’s first quarter shows sequential improvement in sales trends
Nordstrom Inc. posted a loss in the first quarter, as expected, while posting continued strength in online sales. The retailer said a sequential improvement in sales trends of more than 700 basis points from the fourth quarter, but overall sales were down 13% from the first quarter of 2019.
The company reported a loss before interest and taxes of $ 85 million, supported by improving sales trends and the continued benefits of resetting its cost structure. The diluted loss per share of $ 1.05 includes a debt refinancing charge of $ 0.41 per share. Excluding fees, the loss is 64 cents against Wall Street’s consensus target of 57 cents.
For the first quarter ended May 1, 2021, net sales increased 44% to $ 2.92 billion compared to the same period of fiscal 2020 and decreased 13% compared to the same period of l year 2019, a sequential improvement of 720 basis points compared to the fourth quarter. of fiscal 2020. Sales were in line with Wall Street’s consensus target.
Sales trends reflect an overall improvement within Nordstrom and Nordstrom Rack, in-store and online, and across regions and merchandise categories. During the quarter, Nordstrom extended the deployment of its market strategy to its top 20 markets, which account for approximately 75% of sales.
âWe are encouraged by sales trends both in our stores and in our digital business, supported by an improving consumer environment and strong execution,â said Erik Nordstrom, CEO of Nordstrom, Inc. âRegarding for summer, we are in a good position to continue. to capitalize on pent-up demand, and we are further strengthening our position as we execute our strategy to win in our most important markets, expand Nordstrom Rack’s reach and increase our digital speed.
Sales benefited from improving trends in categories such as second-hand clothing, handbags, sunglasses and swimwear, while home, asset, designer and beauty categories continued to grow. perform well. The company expanded its assortment in Nordstrom and Nordstrom Rack while reducing its excess inventory from the end of the fourth quarter of fiscal 2020 faster than expected. The company balances inventory levels with sales while managing receiving flows to mitigate potential supply chain disruptions as the year progresses.
âWe continue to serve our long-time and new customers on their terms, with a very relevant and current product, more choice and better service, which allows us to deliver on our commitment to get closer to you,â said Pete. Nordstrom, President and Brand CEO of Nordstrom, Inc. âThrough the efforts of our incredible employees and a close partnership with our suppliers, we have aligned our inventories with current sales trends and are driven by the momentum we’re seeing in the business and the plans we have for a strong anniversary sale. “
As previously announced, Nordstrom further improved its financial position in April by repurchasing $ 600 million of 8.75% secured notes and issuing lower coupon unsecured notes maturing in 2024 and 2031. As a result of these transactions, the company’s bond portfolio is again fully unsecured. . These transactions will reduce annualized interest expense by approximately $ 30 million starting in the second quarter of fiscal 2021.
Summary of the first quarter of 2021
- The company’s total net sales increased 44% compared to the same period in fiscal 2020, in which stores were temporarily closed for about half of the quarter. Sales decreased 13% from the same period of fiscal 2019 and marked a sequential improvement of 720 basis points from the fourth quarter of 2020.
- For the Nordstrom brand, net sales increased 37% compared to the same period of fiscal 2020 and decreased by 13% compared to the same period of fiscal 2019.
- For the Nordstrom Rack brand, net sales increased by 59% compared to the same period of fiscal 2020 and decreased by 13% compared to the same period of fiscal 2019.
- Digital sales increased 23% compared to the same period of fiscal 2020 and 28% compared to the same period of fiscal 2019. Digital sales represented 46% of total sales for the quarter.
- Gross profit, as a percentage of net sales, of 31 percent increased by approximately 2,000 basis points compared to the same period in fiscal 2020, mainly due to lower markdowns and leverage resulting from the increase in net sales volume. Gross profit, as a percentage of net sales, decreased 260 basis points compared to the same period of fiscal 2019 due to deleveraging related to lower sales and lower margins on merchandise, partially offset through permanent reductions in purchase and occupancy costs.
- Ending inventories were down 2% compared to the same period in fiscal 2019, compared to a 13% drop in sales. The change in inventory levels from 2019 includes an impact of approximately 700 basis points resulting from the acceleration of supplier shipments to support sales trends and mitigate potential supply chain backlogs in the second quarter.
- Selling, general and administrative (“SG&A”) expenses, as a percentage of net sales, of 37% decreased by approximately 1,900 basis points compared to the same period of fiscal 2020 due to $ 250 million costs associated with the impact of COVID-19 in 2020, a leverage effect on increased sales and the continued benefit of permanent reductions in overheads of around 15%. General and administrative expenses, as a percentage of net sales, increased 280 basis points compared to the same period in fiscal 2019 due to labor and freight cost pressures related to COVID- 19.
- The loss before interest and taxes of $ 85 million decreased from a loss of $ 813 million in the same period of fiscal 2020, mainly due to the increase in sales volume as well as the loss of $ 813 million in the same period of fiscal 2020. reduction in general and administrative costs. Last year’s loss included $ 280 million in charges related to COVID-19.
- Interest expense, net of $ 137 million, increased by $ 34 million in the same period of fiscal 2020 and included a pre-tax debt refinancing charge of $ 88 million related to the premium of âRefurbishmentâ and the unamortized issue costs associated with the 2025 guarantee surrender. Notes.
- Tax savings of $ 56 million, or 25% of the pre-tax loss, compared to the tax reduction of $ 326 million, or 38% of the pre-tax loss, during the same period of the fiscal year 2020. Last year’s income tax included the benefits associated with the Coronavirus Help, Relief and Economic Security Act (âCARES Actâ).
- The first quarter net loss of $ 166 million, which included an after-tax debt refinancing charge of $ 64 million, decreased from a net loss of $ 521 million in the same period of l fiscal year 2020, which included after-tax charges of $ 173 million related to COVID -19.
- The company ended the first quarter with $ 977 million in free cash, including $ 377 million in cash.
Outlook for 2021
The company reaffirmed the following financial expectations for fiscal 2021:
- Revenues, including retail sales and credit card revenues, are expected to increase by more than 25%;
- Profit margin before interest and taxes (EBIT) is expected to represent around 3% of sales;
- The income tax rate should be around 27 percent;
- The leverage ratio is expected to be around 3x by the end of the year; and
- For the first half of the year, EBIT is expected to be roughly at a standstill, reflecting around 45 percent of total sales for the year.
Photo courtesy of Nordstrom