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Financial Roundup: Kohls Net Income Jumps 85.7% in Q4, While Nordstom Struggles

Kohl’s Corp.

In a Nutshell: Kohl’s Corp., which finished the fiscal year with 1,158 stores in 49 states, continued a rebound in the fourth quarter, as overall and comparable store sales saw significant increases and net income nearly doubled in the period, and up more than 50 percent for the year. The company reported improved gross margins and lowered inventory levels at year’s end.

The department store chain also said it was teaming up with German no-frills grocery chain Aldi to lease space in five to 10 of its stores. Kohl’s has been re-evaluating store productivity and has shrunk some by as much as 10 percent—without impacting sales results. In other cases, the retailer has transitioned stores from the typical 87,000 square foot size down to 35,000 square feet, and has last year started accepting returns from in 82 of its stores, while dedicating areas in 10 stores to sell Amazon Echos, Fire tablets and other gadgets.

Sales: Sales for the fourth quarter ended Feb. 3 increased 9.2% to $6.78 billion from $6.21 billion in the year-ago-period. Comparable store sales rose 6.3% compared to a decline of 2.2% a year earlier. Kohl’s noted that the retail calendar for fiscal 2018 included a fifth week, resulting in a 14-week fiscal fourth quarter and a 53-week year. During this 53rd week, total sales were approximately $170 million.

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In the full year, sales gained 2.2% to $19.1 billion from $18.67 billion in fiscal 2016. Comparable store sales improved 1.5% in fiscal 2017 compared to a decline of 2.2% the previous year.

Earnings: Fourth quarter net income jumped 85.7% to $468 million from $252 million a year earlier. For the year, net income rose 54.5% to $859 million from $556 in the year-ago period. The 53rd week increased the company’s net income by approximately $15 million

Gross margin in the fourth quarter improved to 33.8% in the fourth quarter from 33.4% in the year-ago period. For the year, had a small uptick to 36.2% from 36.1% in the prior 12 months.

CEO’s Take: Kevin Mansell, chairman, CEO and president, said, “I am very pleased with our fourth quarter and full year results, which exceeded the high end of our most recent guidance by 11 cents a per share. Over the course of the year, we saw consistent, sustained improvement in sales trends, which culminated in a 6.3% increase in our fourth quarter comp sales. We improved our merchandise margins through strong inventory management and improved promotional and permanent markdowns. All areas effectively managed their expenses. And, we ended the year with 7 percent less inventory.”

Nordstrom Inc.

In a Nutshell: It seems Nordstrom Inc. is on path to go private. During the year, Nordstrom repurchased 4.6 million shares of its common stock for $206 million. A total of approximately $414 million remains under existing share repurchase board authorizations and the company said it doesn’t plan to repurchase any shares while members of the Nordstrom family explore the possibility of a “going private transaction.”

The family group is said to control some 30 percent of the department store chain, and is finalizing an offer to take it private, reportedly meeting with investment banks.

Meanwhile, the company posted mixed results for the fourth quarter and fiscal year, with sales increased in both periods, but net earnings fell in the final quarter even with an extra week compared to the previous year. Nordstrom also announced it would open a men’s store in New York next month and it’s expanding Nordstrom Rack into Canada.

Sales: Net sales for the fourth quarter ended Feb. 3 increased 8.4% to $4.6 billion, inclusive of about $220 million related to the 53rd week, compared with net sales of $4.2 billion during the same period in fiscal 2016. Comparable sales for the fourth quarter increased 2.6%.

In the Nordstrom brand, which includes U.S. and Canada full-line stores, and Trunk Club, net sales increased 6.4% and comparable sales increased 2.4%. Across U.S. full-line stores and, the top-performing merchandise categories were kids’ and men’s apparel. In the Nordstrom Rack brand, net sales increased 15 percent and comparable sales increased 3.7%.

For fiscal 2017, net sales increased 4.4% to reach record sales of $15.1 billion and comparable sales increased 0.8%, slightly exceeding the company’s prior outlook for sales growth of about 4.2% and comparable sales increase of approximately 0.5%.

Earnings: Fourth quarter net earnings fell 25 percent to $151 million from $201 million for the same period in fiscal 2016, earnings before interest and taxes (EBIT) declined 21 percent to $350 million, or 7.6% of net sales, compared with EBIT of $424 million, or 10 percent of net sales in the prior year.

Net earnings included a $42 million charge related to corporate tax reform, including a one-time, non-cash charge of $51 million related to the revaluation of its deferred tax assets, partially offset by cash tax savings from a lower federal tax rate.

Full year net earnings grew 23 percent to $437 million from $354 million in the prior-year quarter, and EBIT increased 15 percent to $926 million, or 6.1% of net sales, compared with EBIT of $805 million, or 5.6% of net sales, for the same period in fiscal 2016.

CEO’s Take: Blake Nordstrom, co-president, said, “Our customer strategy is centered on three strategic pillars: providing a differentiated product offering, delivering exceptional services and experiences and leveraging the strength of our brand. As we continue to evolve with customers, we’re combining our digital and physical assets to create new ways for them to shop. We invested early in our omnichannel capabilities integrating our inventory across our stores and online over a decade ago. This has enabled us to serve customers in multiple ways. Today we have more than 60 combinations in which merchandise is ordered, fulfilled and delivered. Through these investments, we have strengthened our foundation to better serve customers and gain market share.”

“At the close of 2017, we had 33 million customers who shop with us during the year. Additionally, 9 million customers shopped in multiple ways, a 6 perent increase over the previous year. It’s noteworthy that customers spend nearly 70 perent more when shopping us with through multiple touch points. In the last 12 months, nine million customers shopped across Nordstrom’s multiple touch points. Our high-quality store portfolio combined with our robust digital platform to serve customers in multiple ways, with 30 percent full-price penetration in digital sales. We experienced continued positive customer trends, reflecting customer growth of 4 percent to 33 million in fiscal 2017. Investments that include and HauteLook, Canada, and Trunk Club contributed $1.5 billion in sales.”