Nordstrom posts steep drop in fourth-quarter profit

Nordstrom posted a steep drop in its fourth-quarter profit Monday, saying it was forced to cut prices to move merchandise during the holiday shopping period amid an unprecedented level of discounting from the likes of Neiman Marcus and Saks Fifth Avenue.

The Seattle company's profit plunged 68 percent to $68 million, or 31 cents a share, from $212 million, or 92 cents a share, a year ago.

Nordstrom narrowly beat Wall Street's expectation for a per-share profit of 30 cents.

Chief Financial Officer Mike Koppel told analysts in a conference call that the company had 10 times more markdowns this past holiday season than the previous year.

"It was a really, really crummy year," said Patricia Edwards, founder of the Bellevue retail consultancy Storehouse Partners.

Looking ahead, she expects Nordstrom to increasingly sell merchandise that can't be found elsewhere, to avoid "going toe to toe with competitors" on price alone.

"Retail has always been a lean, mean industry, but it's getting leaner and a heck of a lot meaner," Edwards said.

For the three months ended Jan. 31, sales declined nearly 8.5 percent to $2.3 billion.

Sales at stores open at least a year fell 12.5 percent, with a 1.5 percent drop in Nordstrom's off-price Rack division partly offsetting a much bigger decrease of 15.8 percent in the full-line division.

Nordstrom Direct, which includes the company's Web site, remained a bright spot, posting a 10 percent sales increase.

For the full fiscal year, Nordstrom had a profit of $401 million, or $1.83 a share, on sales of $8.3 billion.

The company predicts a per-share profit of between $1.10 and $1.40 for the fiscal year now under way.

"We expect the first half of 2009 to be the most challenging," Koppel said in the conference call.

Citing economic uncertainty, Nordstrom said it will stop making quarterly profit predictions, though it will continue to update its expectations for the year on a quarterly basis and release monthly sale results.

Wall Street reacted to Monday's report by pushing shares of Nordstrom up $1.37, or 12 percent, to $12.70 in after-hours trading. Nordstrom released its results after the close of regular trading. Nordstrom's stock — which has traded between $6.61 and $39.52 in the past year, ended the regular session down 56 cents at $11.33.

The company also said Monday:

• It plans to open three new full-line clothing stores this year, down from eight last year.

• Inventory on a per-square-foot basis was down 12 percent at year's end, matching its fourth-quarter same-store sales decline.

• The delinquency rate for its store-branded credit cards hit 3.8 percent at the end of the quarter, up from 2.6 percent a year ago. Net charge-offs rose to 6.8 percent from 4.4 percent.

• It reduced selling, general and administrative expenses by $25 million, excluding $58 million for new stores and increased bad-debt reserves.

Koppel said the company is trying to bring its expenses in line with 2003 levels, though he did not provide additional details.

The company said in January that it's generally not filling job openings at its downtown headquarters and letting some salespeople go in stores.

One area that's not being cut is store maintenance, said President Blake Nordstrom. "It's important that we maintain the look, feel and experience of shopping in our stores," he said.

Also, the company last week declared a quarterly dividend of 16 cents a share, as it did for each of the previous four quarters.

Even so, Britt Beemer, a consumer analyst with America's Research Group in Orlando, Fla., said he thinks Nordstrom needs to do some things differently.

"Longtime Nordstrom customers complain that there's a lot of staff turnover in stores, and they don't get as many thank-you notes as they once did," said Beemer, who recommends that Nordstrom allow salespeople to call their best customers with special discounts and promotions.

He noted that in a recent survey of U.S. households who make at least $500,000 a year, nearly three-fourths told him they were spending less than they had been.

"They're not going to starve, but they sure feel poorer," Beemer said. "Everybody is feeling the pinch."

Amy Martinez: 206-464-2923 or amartinez@seattletimes.com