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Third-quarter net earnings at Nordstrom Inc. dropped to $53 million from $126 million in the year-ago period, though the company cited sequential improvement in sales and earnings from this year’s second quarter.
The net profit for the third quarter ended Oct. 31 included an income tax benefit of $19 million associated with the Cares Act.
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Earnings before interest and taxes came to $106 million, a decrease from $193 million during the same period in fiscal 2019, primarily due to lower sales volume, partially offset by realized expense savings. Like other retailers, Nordstrom has been hurt by the coronavirus and lack of store traffic. Its flagships in New York, San Francisco and Los Angeles would be particularly impacted with many downtown office workers choosing to work from home, and many families fleeing to the suburbs where the population is less dense and perceived risks of getting infected by the coronavirus are reduced.
Total company sales decreased 16 percent to $3 billion, from $3.56 billion in the year-ago period. The sales results included an approximate 10 point positive impact from the Anniversary Sale event, which shifted from the second quarter in 2019 to the third quarter this year.
Top-performing merchandise categories included active, home, beauty and designer.
In Nordstrom’s full-price business, net sales decreased 7 percent. Excluding the Anniversary Sale event shift impact, sales decreased in the mid-20s percent range.
In the Nordstrom Rack off-price business, net sales decreased 32 percent compared with the same period in fiscal 2019.
Digital sales of $1.6 billion represented 54 percent of total sales and increased 37 percent. Excluding the Anniversary Sale shift, digital sales increased in the midteens percent range in the third quarter, consistent with trends in the first half of the year.
Gross profit as a percentage of net sales of 32.8 percent decreased 150 basis points from the same period in fiscal 2019 primarily due to the shift of the Anniversary Sale in addition to deleverage from lower sales volume. Merchandise margins exceeded company expectations and reflected significant improvement relative to the prior quarter, the company said.
“Our ability to significantly strengthen our financial flexibility early in the pandemic was key to delivering operating profitability of more than $100 million and cash flow of more than $150 million in the third quarter,” said Erik Nordstrom, chief executive officer of the Seattle-based retailer. “We unlocked new ways to better serve customers on their terms with greater convenience and connection, including expansion of our online order pickup services to nearly 350 locations across both Nordstrom and Nordstrom Racks.”
In October, Nordstrom rolled out its market strategy to five additional markets, scaling to 10 of its top markets, which account for more than half of sales. In these markets, customers have access to up to seven times more merchandise selection with two-day delivery or next-day pickup. In addition, customers can now pick up nordstrom.com, nordstromrack.com and HauteLook.com orders at all Nordstrom and Nordstrom Rack stores in the U.S.
Nordstrom Rack represents the biggest source of new customers.
Third-quarter operating cash flow of $155 million exceeded expectations, enabling Nordstrom to pay down an additional $300 million on its revolving line of credit. Nordstrom ended the quarter with $1.5 billion in liquidity including about $900 million in cash.
“We are thankful for our team’s dedication to serving customers in new and differentiated ways,” said Pete Nordstrom, president and chief brand officer of Nordstrom Inc. “By working with our vendor partners, we have made quick adjustments to ensure a great holiday offering for our customers. We are encouraged by the positive momentum and expect continued progress in the fourth quarter and into 2021.”