J.C. Penney’s saw sales rise but losses deepen, Nordstrom had a happy anniversary and Zalando plots growth path.
J.C. Penney Co.
In a Nutshell: As J.C. Penney continues to shrink its store count and refine its operations, it delivered top-line growth while its bottom line losses widened. Top performing divisions during the quarter were home, fine jewelry, footwear and handbags, Sephora and Salon, with the Southwest and Southeast the best performing regions of the country. The company updated its cost of goods sold guidance and reaffirmed the remaining 2017 full year guidance, with comparable store sales expected to range between down 1 percent to up 1 percent, cost of goods sold now expected to be up 30 to 50 basis points versus 2016 and adjusted earnings per share expected to be 40 cents to 65 cents.
Sales: Net sales for the second quarter ended July 29 increased 1.5% to $3 billion compared to $2.9 billion in the same period last year. Comparable sales declined 1.3% for the quarter.
Earnings: The company’s net loss grew in the quarter to $62 million compared to a net loss of $56 million in the same period last year. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) for the second quarter was $196 million compared to $233 million last year.
CEO’s Take: Marvin R. Ellison, chairman and chief executive officer, said: “While broader retail remains challenged, we are encouraged by the improved performance in our total apparel business, including a significant acceleration in kids’ apparel. Nearly all categories delivered improved sales results during the quarter, with our growth initiatives in beauty, home refresh and omnichannel continuing to deliver positive sales growth.”
Ellison continued, “During the second quarter, we liquidated inventory in 127 of our closing stores, which had a negative impact on gross margin and EPS. These events were isolated to the second quarter. As such, we are reaffirming our EPS guidance for the year and remain confident in our ability to further strengthen our balance sheet, while driving sustainable growth and long-term profitability for J.C. Penney. To that end, we are pleased that we are off to a strong start in August for the all-important back to school season. We are excited by this momentum and expect to deliver improved results in the back half of the year.”
In a Nutshell: Boosted by its Anniversary Sale, historically Nordstrom’s largest event of the year which performed better than expected, net sales in the second quarter increased 3.5% and comparable sales increased 1.7% compared with the same quarter last year. Nordstrom said it is making continued progress in executing its customer strategy, while maintaining discipline around inventory and expenses.
As a result of the company’s ongoing efforts to provide newness and limited-distribution product to customers, Nordstrom proprietary labels represented three of the top five selling brands during the Anniversary Sale. In executing its digital strategy, the company delivered online sales growth of 20 percent at Nordstrom.com, reflecting its largest volume day in company history, and 27 percent at Nordstromrack.com/HauteLook.
The company declined to comment on developments related to the Nordstrom family plan to take the retail chain private.
Sales: Net sales increased 3.5% to $3.7 billion in the second quarter ended July 29, compared with net sales of $3.6 billion during the same period in fiscal 2016. In the Nordstrom brand, including U.S. and Canada full-line stores and Nordstrom.com, net sales when combined with Trunk Club, increased 2.4% and comparable sales increased 1.4%, with the top-performing merchandise categories women’s apparel and beauty. The East was the top-ranking U.S. geographic region.
In the Nordstrom Rack brand, which consists of Nordstrom Rack stores and Nordstromrack.com/HauteLook, net sales increased 9.8 percent and comparable sales increased 3.1 percent. The East was the top-ranking geographic region.
Earnings: Second quarter net earnings declined 6 percent to $110 million from $117 million in the year-ago period, while earnings before interest and taxes fell 1.8% to $217 million from $221 million during the same period in fiscal 2016. Retail gross profit as a percentage of net sales was 34.1% a decrease of 25 basis points from the 2016 period. This primarily reflected higher occupancy expenses related to new store growth for Nordstrom Rack and Canada, in addition to higher loyalty expenses during the Anniversary Sale. This was partially offset by improved merchandise margins, reflecting the continued strength in regular price selling.
[Read more about the industry’s reaction to Nordstrom’s transformation plan: Nordstrom’s Transformation Hangs on a Private Equity Deal—Or Does It?]
CEO’s Take: Blake Nordstrom, co-president, said, “We continue to focus on enhancing the customer experience and reaching new customers by leveraging our digital capabilities and investing in our top markets. As part of our customer strategy, we’re continually testing and rolling out new ways to connect the physical and digital shopping experiences.
We’re expanding our Reserve Online & Try in Store service from six stores in the Seattle area to four more in the Chicago market. We plan to offer this feature in roughly 50 stores by the end of the year. We’re executing on our digital strategy to meet our ambition for continued double-digit online growth. Through our ongoing efforts to elevate the digital experience, we expect our online penetration to exceed 25 percent by the end of the year.
In our efforts to gain market share, we continue to prioritize our investments in the top North American markets. In September, we’ll complete our planned full-line store expansion into Canada with a sixth store at Sherway Gardens in Toronto, and in October, we will relocate two full-line stores in California, one from Westside Pavilion to Century City in Los Angeles and the other into a new space at University Town Center in La Jolla.”
In a Nutshell: As part of its continued growth initiatives, Zalando plans to expand its European fulfillment network with two large fulfillment centers in Poland and Italy. Zalando already operates three of a similar size in Germany, as it prepares to launch initial operations in Poland in the third quarter of 2017. The company also completed the acquisitions of Anatwine and Kickz in the second quarter.
Sales: Revenue in the second quarter ended July 29 grew 20.1% to 1.1 billion euros ($1.3 billion), driven by a growing active customer base, as well as an increase in average orders to 3.7 times per year, marking another all-time high and indicating strengthened customer loyalty. Active customers increased by approximately 800,000 to 21.2 million compared to the previous quarter, the strongest increase since the fourth quarter 2015.
Earnings: Adjusted EBIT rose 1 percent to 81.8 million euros ($96.53 million) from 80.9 million euros ($95.47 million) a year earlier. A slightly lower gross margin and increased fulfillment cost could not be fully offset by improved marketing cost. The increase in fulfillment cost is primarily attributable to higher logistic costs, as Zalando continued with its convenience investments around fast delivery and returns, plus further ramp-up of capacity and automation at its various fulfillment sites.
CEO’s Take: Rubin Ritter, co-ceo, said: “We firmly believe that growth is the right strategy to increase the value of our business. It is in our DNA to continuously evaluate additional investment opportunities, test ideas and then start scaling them. This can range from assortment additions to our recently launched customer loyalty program.
“Zalando strongly executed on its platform strategy during the past quarter,” Ritter continued. “The company launched Zalando Fulfillment Solutions with Bestseller as first flagship partner, allowing fashion brands access to its logistics infrastructure and know-how. The transactions of Anatwine and KICKZ were closed in the second quarter. Anatwine is a software solution developer that enables fashion brands to sell merchandise on marketplaces. With the addition of KICKZ, a multi-channel basketball retailer, Zalando strengthened its sports and lifestyle segment, especially in the area of basketball. The assortment was further expanded with Nike, Lacoste, Pepe Jeans and Esprit joining the Zalando Partner Program.”
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