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Online and Rack Propel Nordstrom Q3 Sales and Earnings Growth

When it’s deliver-or-die, supply chains become the lifeblood of a company. To that end, the fashion industry has embraced technology to navigate today’s hyper-complicated supply chain, with myriad solutions shaping the first, middle and last mile. Call it Sourcing 2.0.

Nordstrom Inc. reported third quarter earnings results that were in line with company expectations but beat Wall Street forecasts. Net income rose 3.6% to $142 million, or $0.73 per share, from $137 million, or $0.69 per share, in the third quarter of 2013, beating consensus estimates by $0.02 per share.

The company enjoyed an 8.9% increase in total revenue to $3.1 billion, driven primarily by gains in its online and off-price businesses. Total sales at full-line stores increased by 0.5%, and at the company’s Nordstrom Rack division by 15 percent. Direct net sales were up 22 percent, helped by an expanded merchandise selection on the Nordstrom.com e-commerce site. Net sales at the combined Nordstromrack.com and HauteLook flash sale site businesses jumped by 34 percent.

Comparable store sales increased 3.9%, driven primarily by gains in the direct (online) business. Rack comps rose by 1.7%. Comps were flat at the Nordstrom full-line stores in the period, the division’s best quarterly comp performance in several quarters.

Top-performing merchandise categories in the full-line and direct businesses included accessories, cosmetics and men’s apparel. The Southeast, Southwest and Midwest regions were the top-performing geographic areas.

During the quarterly earnings conference call, management commented that it was pleased with some improvements in Nordstrom full-line categories. Top Shop and Top Man, now in 53 locations, are bringing new customers into the stores. Active was mentioned as a strong trend, not only in the activewear department, but also as a component of sportswear.

During the quarter, the company opened three full-line stores, including its first in Canada, and 16 Nordstrom Rack stores. It also acquired men’s personalized clothing service Trunk Club, whose sales grew by a reported 9 percent compared to the same period last year.

Gross margin of 35.5% decreased 33 basis points compared with the same period in 2013, increasing the year-to-date gross margin decline to 52 basis points, due to Nordstrom Rack’s accelerated store expansion and increased discounting.

The company reduced its earnings outlook for the full year to $3.70 to $3.75 from its prior level of $3.80 to $3.90, primarily due to the acquisition of Trunk Club, whose impact on earnings per diluted share is expected to be about 3 percent, $0.04 of which occurred in the third quarter.

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