Nordstrom mum on go-private talks as sales swell

Dive Brief:

Nordstrom on Thursday reported fourth quarter net sales rose 8.4% to $4.6 billion, up from $4.2 billion in the year-ago period. With $102 million in credit card revenue, sales rose 8.9% to $4.70 billion, besting the $4.62 billion Thomson Reuters I/B/E/S analyst expectation cited by Reuters. Same-store sales rose 2.6%, handily beating the 1.08% Thomson Reuters I/B/E/S forecast.
By brand: In flagship stores, online and for Trunk Club, net sales rose 6.4% and same-store sales rose 2.4%, with kids' and men's apparel performing especially well. At Nordstrom Rack, net sales rose 15% and same-store sales rose 3.7%. The company's off-price efforts are strong online as well as off, as the company noted that Nordstromrack.com and HauteLook are its fastest-growing businesses, slated to reach $1 billion in revenues. Those sites last year accounted for 18% of off-price sales and drove 45% of new customer growth.
Net earnings dropped to $151 million or 89 cents per share, from $201 million, or $1.15 per share, in the year-ago quarter. Adjusted earnings of $1.20 per share missed the Thomson Reuters I/B/E/S of average estimate of $1.16.

Dive Insight:

While many speculated Nordstrom's earnings report would include news of a long-rumored go-private deal, Nordstrom executives opened their conference call with analysts on Thursday saying there’d be no discussion of the "exploration by the Nordstrom family of the possibility of a going-private transaction, or the process," according to a transcript from Seeking Alpha.

Still, Cowen & Co. analysts peg the likelihood of the department store falling into private hands at "greater than 50% ... especially as prospects for accelerating cash flow and improving margin come true," according to a note emailed to Retail Dive.

During the year, the company repurchased 4.6 million shares of its common stock for $206 million, and some $414 million remains under existing share repurchase board authorizations. But Nordstrom said in a press release that it doesn’t plan to repurchase any shares while the Nordstrom family explores its options related to going private.

Absent from the report are e-commerce numbers, the result of a reporting change going forward that executives said reflects their successful breakdown of barriers between online and offline channels. The company is doubling down on digital-physical integration this year, starting with a pilot in its Los Angeles-area operations, the company's largest market with 4 million customers and its new merchandise-free Nordstrom Local store.

"Today we have more than 60 combinations in which merchandise is ordered, fulfilled and delivered. … We believe that we will gain terrific learnings from our experience in L.A. that we could apply to other markets.”

Cowen & Co. hailed the company's omnichannel strength, noting that in Q4 Nordstrom's digital penetration grew to 32% of full-line revenues and to 29% in the full fiscal 2017 year. "We attribute digital strength to ahead-of-the-curve investments in mobile and omnichannel convenience including Reserve Online, Try It in Store and Style Boards, which along with BOPUS grew by 30% as Nordstrom.com generated 700 million site visits," Cowen analysts said.

The company also announced that on April 12 it’s opening a men's store in New York City, (akin to a women’s store slated to open there in fall 2019), that will be its largest project to-date. Other brick-and-mortar plans include the introduction of six Nordstrom Rack stores in Canada and six in the U.S., in Arizona, California, Illinois, New Jersey, Pennsylvania and Texas.

Executives said they will continue to pursue brand partnerships that elevate its fashion and offer "hard to find" items and "preferred brands." Merchandising and pricing initiatives have gone well: over 60% of its full-price brands have limited promotional exposure, a 17-percentage point improvement from two years ago, Blake Nordstrom noted. Changes to the Nordstrom Rewards loyalty program from 2016 are yielding benefits like engagement and data. The program has more than 10 million active Nordstrom Rewards customers, an increase of 35% year-over-year, he said.