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Nordstrom Posts Fourth Quarter and Full-Year Earnings In Line with Expectations

Nordstrom Inc. (JWN) posted fourth quarter and fiscal year 2014 earnings results late last week that were in line with both company guidance and Wall Street expectations.

In the three months ended Jan. 31, 2014, net sales increased 9 percent to $3.9 billion from the prior year, driven primarily by a 17 percent jump in sales at Nordstrom Rack. Full-line net sales edged up by only 1.2%. Fourth-quarter comparable sales grew by 4.7%. Full-line comps, which include the Nordstrom.com business, increased 4.5%, with cosmetics, accessories and men’s apparel the top performing merchandise categories. Nordstrom Rack comparable sales rose by 3.2%.

Gross margin declined 53 basis points to 36.7%, primarily due to increased markdowns at Nordstrom Rack.

SG&A expense increased by 110 basis points to 27.5% due to expenses relating to the acquisition of Trunk Club and increased investments in technology and fulfillment capabilities.

Fourth-quarter net income fell by 4.9% to $255 million, or $1.32, from $268 million, or $1.37 per share, from the prior year period.

For the full year, total sales rose by 7.8% to $13.1 billion, driven primarily by a 17 percent increase in net sales at Nordstrom Rack.

Full-year comps increased by 4 percent, exceeding the company’s full-year outlook of approximately 3.5%. Comps at full-line stores decreased by 0.5%, an improvement over the prior year’s 2.1% decline. The Southeast and Southwest regions were the top-performing geographic areas. Nordstrom.com net sales increased 23 percent for the year, its fifth consecutive year of net sales growth in excess of 20 percent, helped by expanded merchandise selection and ongoing technology investments. Combined full-line and Nordstrom.com comps rose by 3.6% for the year. Nordstrom Rack comps increased 3.8%.

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For the full year, gross margin fell by 52 basis points to 35.9% of net sales. SG&A increased by 42 basis points to 28.8%. Full-year net income fell by 1.2% to $720 million, or $3.72 per share, from $734 million, or $3.71 per share, in line with guidance.

During the year, the company opened three net new full-line stores, including its first in Canada, bringing its total to 116 full-line, and 27 new Rack stores, for a total of 167. It also launched Nordstromrack.com and acquired Trunk Club.

In fiscal 2014 the company sustained a loss of $32 million before interest and taxes on its entry into the Canadian market, and expects its ongoing Canadian expansion to lose about $60 million in fiscal 2015 due to infrastructure and pre-opening costs.

The company expects net sales to increase between 7 and 9 percent in the current fiscal year, with comps rising 2 to 4 percent. Gross margin is expected to edge down slightly, and SG&A to rise as a result of growth initiatives such as an additional fulfillment center set to open in the second half of the year.

On the quarterly earnings conference call, CEO Blake Nordstrom told analysts, “As we look ahead to 2015, we have a number of growth initiatives planned in support of our efforts to improve the customer experience, including our ongoing expansion in Canada with a store opening in Ottawa in the spring and Vancouver in the fall. In the U.S. we plan to expand our retail presence with three new full-line stores in Puerto Rico, Minneapolis and Milwaukee. We also plan to open 27 Rack stores this year and roughly 25 in 2016. Since we announced our growth plans a couple of years ago, we now see a clear path to reach 300 Rack stores by 2020.”

Nordstrom stock closed at $81.11 on Monday, up 2.1% year-to-date.