Nordstrom, Inc. Annual Report
customers, employees and shareholders,
On behalf of everyone at Nordstrom, I am pleased to share with you our company’s 2007 performance and outlook for 2008 and beyond. Overall, we realized a number of top performances in 2007, thanks to the hard work of more than 55,000 Nordstrom employees. Let’s review the highlights: • Total sales increased 3.1% to a record high $8.8 billion and comparable sales increased 3.9% — our sixth consecutive year of same-store sales gains. • Improving store productivity resulted in a return on investment (ROIC) of 19.4%, and sales of $402 per square foot on a 52-week basis, our best performance ever. • Our SG&A rate (expenses as a percentage of net sales) improved for the seventh year in a row at 26.7%, improving by 9 basis points over last year. • Earnings Before Interest and Taxes (EBIT) were $1.247 billion this year, an improvement of 8.5% over last year. In total, 2007 was a year of good performance for our company. But 2007 was really a tale of two halves. In the first half, the industry was robust, our team executed well, and we experienced comparable store growth of 7.5%. Around mid-year, the market slowed dramatically and our comparable store sales growth was only 0.5%. While we managed our operating expenses well throughout the year, inventories increased in the third and fourth quarters, at about the same time the economy began to slow and sales softened. We addressed the inventory issues quickly and corrected many of them by the beginning of 2008. Thus, we believe we are positioned to perform well in what we expect to be a continued soft retail environment in 2008. Our focus remains on growing market share with our core customers. When we challenge ourselves to offer the best service and merchandise, we give the customer a reason to buy. We have one of the fastest inventory turns among our direct competitors and when we continue to flow in new merchandise, our customers respond best. By executing well, we increase comparable sales and improve profitability, ultimately the best sign that we are taking care of our customers.
We’ve learned that we have tremendous opportunities to gain share of wallet from our core customers. We know these customers as a group are growing at two times the rate of the overall U.S. market, which presents substantial opportunity to grow with these customers as well as increase our share of their spend. We continue to grow our presence in the top markets and best retail locations around the country. We are most interested in pursuing the very best opportunities available rather than increasing square footage just for growth’s sake, and we are happy with the commitments we have made. This spring we opened three new full-line stores and will open five more during the year. We are particularly excited to share with you the opening of our first full-line store in Hawaii, which opened March 7 at Ala Moana Center in Honolulu. This 210,000-square-foot store is the culmination of 12 years of trying to secure a space in one of the best malls in the country. We also opened our eighth store in Florida at Aventura Mall and our second Boston-area store in Burlington, Massachusetts. Additional full-line openings for 2008 include: Clinton Township, Michigan, April 18; Thousand Oaks, California, September 5; Indianapolis, Indiana, September 19; Pittsburgh, Pennsylvania, October 24; and Naples, Florida, November 7. Additionally, we are looking forward to relocating our Tacoma Mall store — which originally opened in 1966 — to a brand new building in the mall on October 3. By the end of 2008, we will have 109 full-line stores. Our longer-term plan is to have 140 to 150 stores by 2015. We believe new stores are a good investment for our shareholders and are the most productive use of our capital. Equally critical to our long-term growth is the continued strong performance of our existing stores....