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| JWN > SEC Filings for JWN > Form 10-K on 18-Mar-2013 | All Recent SEC Filings |
18-Mar-2013
Annual Report
RESULTS OF OPERATIONS
Our reportable segments are Retail and Credit. Our Retail segment includes our
Nordstrom branded full-line stores and website, our Nordstrom Rack stores, our
Last Chance clearance store and our other retail channels including HauteLook,
our Jeffrey stores and our treasure&bond store. For purposes of discussion and
analysis of our results of operations, we combine our Retail segment results
with revenues and expenses in the "Corporate/Other" column of our segment
reporting footnote (collectively, the "Retail Business"). We analyze our results
of operations through earnings before interest and income taxes for our Retail
Business and earnings before income taxes for Credit, while interest expense and
income taxes are discussed on a total company basis.
Similar to many other retailers, Nordstrom follows the retail 4-5-4 reporting calendar, which included an extra week in the fourth quarter of 2012 (the "53rd week"). The analysis of our results of operations, liquidity and capital resources compares the 53 weeks in 2012 to the 52 weeks in 2011. However, the 53rd week is not included in same-store sales calculations. In 2012, the 53rd week contributed approximately $0.04 to earnings per diluted share.
Retail Business
Summary
The following table summarizes the results of our Retail Business for the past
three fiscal years:
Fiscal year 2012 2011 2010
% of net % of net % of net
Amount sales Amount sales Amount sales
Net sales $11,762 100.0 % $10,497 100.0 % $9,310 100.0 %
Cost of sales and
related buying and
occupancy costs (7,318 ) (62.2 %) (6,517 ) (62.1 %) (5,831 ) (62.6 %)
Gross profit 4,444 37.8 % 3,980 37.9 % 3,479 37.4 %
Selling, general and
administrative
expenses (3,166 ) (26.9 %) (2,807 ) (26.7 %) (2,412 ) (25.9 %)
Earnings before
interest and income
taxes $1,278 10.9 % $1,173 11.2 % $1,067 11.5 %
Retail Business Net Sales
Fiscal year 2012 2011 2010
Net sales by channel:
Nordstrom full-line stores $7,964 $7,513 $6,995
Direct 1,269 913 705
Nordstrom 9,233 8,426 7,700
Nordstrom Rack 2,445 2,045 1,691
Other retail1 271 185 29
Total Retail segment 11,949 10,656 9,420
Corporate/Other (187 ) (159 ) (110 )
Total net sales $11,762 $10,497 $9,310
Net sales increase 12.1 % 12.7 % 12.7 %
Same-store sales increase by channel:
Nordstrom full-line stores 3.9 % 6.0 % 7.9 %
Direct 37.1 % 29.5 % 25.1 %
Nordstrom 7.5 % 8.2 % 9.3 %
Nordstrom Rack 7.4 % 3.7 % 0.7 %
Total 7.3 % 7.2 % 8.1 %
Sales per square foot $470 $431 $397
4-wall sales per square foot2 $417 $394 $372
Percentage of net sales by merchandise category:
Women's apparel 31 % 33 % 34 %
Shoes 23 % 23 % 23 %
Men's apparel 16 % 15 % 15 %
Women's accessories 13 % 12 % 12 %
Cosmetics 11 % 11 % 10 %
Kids' apparel 3 % 3 % 3 %
Other 3 % 3 % 3 %
Total 100 % 100 % 100 %
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1 Other retail includes our HauteLook online private sale subsidiary, our
Jeffrey stores and our treasure&bond store.
2 4-wall sales per square foot is calculated as sales for Nordstrom full-line,
Nordstrom Rack, Jeffrey and treasure&bond stores divided by their
weighted-average square footage. Weighted-average square footage includes a
percentage of period-end square footage for new stores equal to the percentage
of the period during which they were open.
Nordstrom, Inc. and subsidiaries 17
NET SALES - 2012 VS 2011
Our total net sales increase of 12.1% for 2012 was driven by the same-store
sales increase of 7.3% and strong performances across all channels. Our sales
productivity continued to improve, reaching a high of $470 in sales per square
foot in 2012 from increases in both our stores and online. During the year, we
opened one Nordstrom full-line store, 15 Nordstrom Rack stores and relocated
three Nordstrom Rack stores. These additions represented 1.5% of our total net
sales for 2012, and increased our square footage by 2.2%. The 53rd week
contributed approximately $162 in additional net sales.
Nordstrom net sales for 2012 were $9,233, an increase of 9.6% compared with
2011, with same-store sales up 7.5%. Our sales growth was due in large part to
the ongoing, consistent strength of our business both in store and online. We
enhanced our Fashion Rewards loyalty program and expanded our relationship with
our customers. At the same time, we made investments to improve the in-store,
online and mobile experience. Both the number of items sold and the average
selling price increased in 2012 compared with 2011. Category highlights included
Handbags, Men's Shoes, Men's Apparel and Cosmetics. We also saw improvements in
our Women's Apparel business in the second half of the year.
Full-line net sales for 2012 were $7,964, an increase of 6.0% compared with
2011, with same-store sales up 3.9%. The top-performing geographic regions for
full-line stores for 2012 were the South and Midwest. The Direct channel
continued to show strong sales growth with net sales of $1,269, an increase of
39% compared with 2011, with same-store sales up 37% on a comparable 52-week
basis. These increases significantly outpaced our overall performance and are
reflective of how customers are responding to our ongoing e-commerce
initiatives.
Nordstrom Rack net sales were $2,445, an increase of 20% compared with 2011,
while same-store sales increased 7.4% for the year. Men's Apparel, Shoes and
Women's Apparel were the strongest performing categories for the year. Both the
number of items sold and the average selling price increased in 2012 compared
with 2011.
NET SALES - 2011 VS 2010
Net sales for 2011 increased 12.7% compared with 2010, while same-store sales
increased 7.2%. During 2011, we opened three Nordstrom full-line stores, 18
Nordstrom Rack stores and one treasure&bond store, relocated two Nordstrom Rack
stores and acquired HauteLook. These additions represented 4.0% of our total net
sales for 2011, and increased our square footage by 3.8%.
Nordstrom net sales for 2011 were $8,426, up 9.4% compared with 2010, with
same-store sales up 8.2%. Our sales growth was driven by our merchandising,
inventory management and multi-channel initiatives as well as our efforts to
build stronger relationships with customers and to improve the shopping
experience across all channels. Both the average selling price and the number of
items sold increased in 2011 compared with 2010. Category highlights included
Designer, Handbags and Shoes.
Full-line net sales for 2011 were $7,513, an increase of 7.4% compared with
2010, with same-store sales up 6.0%. The top-performing geographic regions for
full-line stores for 2011 were the South and Midwest. The Direct channel
continued to show strong sales growth with net sales of $913, an increase of 30%
in 2011 compared with 2010.
Nordstrom Rack net sales were $2,045, up 21% compared with 2010, while
same-store sales increased 3.7% for the year. Shoes, Dresses and Accessories
were the strongest performing categories for the year. Both the average selling
price and the number of items sold increased in 2011 compared with 2010.
Retail Business Gross Profit Fiscal year 2012 2011 2010 Gross profit1 $4,444 $3,980 $3,479 Gross profit rate 37.8 % 37.9 % 37.4 % Ending inventory per square foot $53.77 $46.41 $40.96 Inventory turnover rate2 5.37 5.56 5.56 |
1 Retailers do not uniformly record the costs of buying and occupancy and supply chain operations (freight, purchasing, receiving, distribution, etc.) between gross profit and selling, general and administrative expense. As such, our gross profit and selling, general and administrative expenses and rates may not be comparable to other retailers' expenses and rates.
2 Inventory turnover rate is calculated as annual cost of sales and related buying and occupancy costs (for all segments) divided by 4-quarter average inventory.
GROSS PROFIT - 2012 VS 2011
Retail gross profit increased $464 in 2012 compared with 2011 due to our strong
sales performance, partially offset by an increase in occupancy costs for our
investments in new stores and remodeling of existing stores. Our gross profit
rate decreased 13 basis points compared with 2011 primarily due to accelerated
Rack growth, which carries a lower gross profit rate relative to our other
channels, and overall occupancy costs that outpace sales in the early years
following a store opening. With Rack's high sales productivity and return on
invested capital, as well as the availability of what we believe are numerous
quality locations, we plan to continue to grow our Rack channel.
Our inventory turnover rate decreased to 5.37 times in 2012, from 5.56 times in
2011. This was primarily due to our increased investment in pack and hold
inventory at Nordstrom Rack, which involves the acquisition of merchandise from
some of our top brands in advance of the upcoming selling seasons in order to
take advantage of strategic buying opportunities. We hold this inventory in our
warehouses for six months on average until the next selling season and it
represents approximately 10% of our total inventory at the end of 2012 compared
with 3% in 2011. On a per square foot basis, we ended the year with a 15.8%
increase in our ending inventory on a 9.0% increase in sales compared with 2011.
The increase in ending inventory per square foot relative to the increase in
sales per square foot is primarily due to Rack's growth.
GROSS PROFIT - 2011 VS 2010 Retail gross profit increased $501 in 2011 compared with 2010 primarily due to higher sales and merchandise margin, partially offset by increases in occupancy costs for stores opened during both 2011 and 2010. Our gross profit rate improved 54 basis points compared with 2010 primarily due to leveraging buying and occupancy costs on higher net sales. Our increase in ending inventory per square foot of 13.3% on an 8.5% increase in sales per square foot is a result of our growth initiatives including expansion of our Rack business. Retail Business Selling, General and Administrative Expenses Fiscal year 2012 2011 2010 Selling, general and administrative expenses $3,166 $2,807 $2,412 Selling, general and administrative rate 26.9 % 26.7 % 25.9 % |
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES - 2012 VS 2011
Our Retail selling, general and administrative expenses ("Retail SG&A")
increased $359 in 2012 compared with 2011. This increase reflects the
investments we made to improve the customer experience across all channels and
specifically in our e-commerce business as we expanded our capabilities and
increased the speed of fulfillment and delivery. The increase also reflected
higher sales volume and the opening of 16 stores in 2012. Our Retail SG&A rate
increased 18 basis points for 2012 compared with 2011 due to the increased
investments, partially offset by leverage on increased sales.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES - 2011 VS 2010
Our Retail SG&A expenses increased $395 in 2011 compared with 2010. This
increase reflects initiatives to improve the shopping experience across all
channels and specifically to grow our e-commerce business. The increase was also
due in part to higher sales volume and the opening of 22 stores in 2011. As a
result, our Retail SG&A rate increased 84 basis points for 2011 compared with
2010. We continued to leverage SG&A expense in our stores, with an improvement
of approximately 35 basis points in 2011, compared with 2010.
Nordstrom, Inc. and subsidiaries 19
Credit Segment
The Nordstrom credit and debit card products are designed to strengthen customer
relationships and grow retail sales by providing loyalty benefits, valuable
services and payment products. We believe that owning all aspects of our credit
business allows us to build deeper relationships with our customers by fully
integrating our rewards program with our retail stores and providing better
service, which in turn fosters greater customer loyalty. Our cardholders tend to
visit our stores more frequently and spend more with us than non-cardholders,
and we believe the Nordstrom Fashion RewardsŪ program helps drive sales in our
Retail segment. Our Nordstrom private label credit and debit cards can be used
only in our Nordstrom full-line and Rack stores and on our website ("inside
volume"), while our Nordstrom VISA cards also may be used for purchases outside
of Nordstrom ("outside volume"). Cardholders participate in the Nordstrom
Fashion Rewards program through which customers accumulate points based on their
level of spending. Upon reaching a certain threshold, customers receive
Nordstrom NotesŪ, which can be redeemed for goods or services in our full-line
stores, at Nordstrom Rack and online. Fashion Rewards customers receive a credit
for complimentary alterations and a personal triple points day, in addition to
early access to sales events. With increased spending, they can receive
additional amounts of these benefits as well as access to exclusive fashion and
shopping events.
The table below provides a detailed view of the operational results of our
Credit segment, consistent with the segment disclosure provided in the Notes to
Consolidated Financial Statements. In order to better reflect the economic
contribution of our credit and debit card program, intercompany merchant fees
are also included in the table below, which represents the estimated costs that
would be incurred if our customers used third-party cards.
Interest expense is assigned to the Credit segment in proportion to the amount
of estimated debt and equity needed to fund our credit card receivables. Based
on our research, debt as a percentage of credit card receivables for other
credit card companies ranges from 70% to 90%. As such, we believe a mix of 80%
debt and 20% equity, as represented by the average credit card receivable
investment metric below, is appropriate.
Fiscal year 2012 2011 2010
% of average % of average % of average
credit card credit card credit card
Amount receivables Amount receivables Amount receivables
Credit card revenues $386 18.6 % $380 18.6 % $390 18.7 %
Interest expense (26 ) (1.2 %) (13 ) (0.7 %) (21 ) (1.0 %)
Net credit card income 360 17.3 % 367 17.9 % 369 17.7 %
Cost of sales and related
buying and occupancy costs -
loyalty program (114 ) (5.5 %) (75 ) (3.7 %) (66 ) (3.2 %)
Selling, general and
administrative expenses (205 ) (9.8 %) (229 ) (11.2 %) (273 ) (13.1 %)
Total expense (319 ) (15.3 %) (304 ) (14.9 %) (339 ) (16.3 %)
Credit segment earnings before
income taxes, as presented in
segment disclosure 41 2.0 % 63 3.1 % 30 1.4 %
Intercompany merchant fees 89 4.3 % 71 3.5 % 58 2.8 %
Credit segment contribution,
before income taxes $130 6.3 % $134 6.6 % $88 4.2 %
Credit and debit card volume:
Outside $4,305 $4,101 $3,838
Inside 4,484 3,596 2,953
Total volume $8,789 $7,697 $6,791
Average credit card
receivables $2,076 $2,047 $2,088
Average credit card receivable
investment1 $415 $409 $418
Credit segment contribution2 19.4 % 20.0 % 12.8 %
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1 Assumes 80% of accounts receivable is funded with debt.
2 Net of tax, calculated as a percentage of our average credit card receivable
investment.
Credit Card Revenues Fiscal year 2012 2011 2010 Finance charge revenue $254 $251 $266 Interchange - third party 84 82 76 Late fees and other revenue 48 47 48 Total credit card revenues $386 $380 $390 |
Credit card revenues include finance charges, interchange fees, late fees and
other revenue. Finance charges represent interest earned on unpaid balances
while interchange fees are earned from the use of Nordstrom VISA credit cards at
merchants outside of Nordstrom. Late fees are assessed when a credit card
account becomes delinquent. We consider an account delinquent if the minimum
payment is not received by the payment due date.
CREDIT CARD REVENUES - 2012 VS 2011
Credit card revenues increased $6 in 2012 compared with 2011 primarily due to an
extra week (the 53rd week) of revenue in 2012 as a result of our 4-5-4 retail
reporting calendar. The increase is also due to growth in total volume that was
offset by continued improvements in customer payment rates. Our average credit
card receivable balance in 2012 was $2,076, an increase of $29, or 1.4%, from
2011.
CREDIT CARD REVENUES - 2011 VS 2010
Credit card revenues decreased $10 in 2011 compared with 2010 primarily due to a
decrease in finance charge revenue resulting from continued improvements in
customer payment rates that drove lower finance charge yields and slightly lower
receivables. Our average credit card receivable balance in 2011 was $2,047, a
decrease of $41, or 1.9%, from 2010. These decreases were partially offset by an
increase in interchange revenue due to increased use of our Nordstrom VISA
credit cards at third parties.
Credit Segment Interest Expense
Interest expense increased to $26 in 2012 from $13 in 2011 and $21 in 2010
primarily due to higher average interest rates applicable to the Credit segment.
Credit Segment Cost of Sales and Related Buying and Occupancy Costs
COST OF SALES AND RELATED BUYING AND OCCUPANCY COSTS - 2012 VS 2011
Cost of sales and related buying and occupancy costs, which include the
estimated cost of Nordstrom Notes that we expect to issue and ultimately be
redeemed and complimentary alterations under our Fashion Rewards program,
increased to $114 in 2012 compared with $75 in 2011. The increase was due to
enhancements to our Fashion Rewards program and increases in Nordstrom credit
and debit card volumes of 14.2%. We provide the Fashion Rewards benefits to our
members, as participation in the program enhances customer loyalty and drives
incremental sales in our stores and online.
COST OF SALES AND RELATED BUYING AND OCCUPANCY COSTS - 2011 VS 2010 Cost of sales and related buying and occupancy costs increased to $75 in 2011 compared with $66 in 2010. The increase was due to additional expenses related to the Fashion Rewards program as a result of a 13.3% increase in volume on Nordstrom credit and debit cards and increased utilization of program benefits. Credit Segment Selling, General and Administrative Expenses Fiscal year 2012 2011 2010 Operational and marketing expenses $149 $128 $124 Bad debt provision 56 101 149 Total Credit selling, general and administrative expenses $205 $229 $273 |
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES - 2012 VS 2011
Total Credit SG&A decreased $24 in 2012 compared with 2011, due to lower bad
debt expense, partially offset by increases in operational and marketing
expenses. The decrease in bad debt expense reflects continued improvement in our
portfolio delinquencies and write-off results, which are further discussed
below. The increase in operational and marketing expenses was primarily driven
by enhancements in our Fashion Rewards benefits.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES - 2011 VS 2010
Total Credit SG&A decreased $44 in 2011 compared with 2010, due primarily to
lower bad debt expense. The decrease in bad debt expense reflected continued
improvement in our portfolio trends, the overall performance of our credit
portfolio and economic trends.
Nordstrom, Inc. and subsidiaries 21
Allowance for Credit Losses and Credit Trends The following table illustrates activity in the allowance for credit losses: . . .
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