Nordstrom 2002 Annual Report Download - page 15

management’s discussion
and analysis
NORDSTROM INC. AND SUBSIDIARIES 13
In 2002, net sales increased 6.1% over the prior year. This growth
was primarily due to store openings. During 2002, we opened eight
full-line stores, four Nordstrom Rack stores and one Façonnable
boutique. We also closed one Nordstrom Rack location. The net
impact was an increase to our retail square footage of 8%.
Comparable store sales increased 1.4% due to increases at both
full-line stores and Nordstrom Rack stores. Sales at Nordstrom
Direct (formerly known as Nordstrom.com) declined slightly with
a planned reduction in catalog sales partially offset by an increase
in Internet sales.
Merchandise division sales were led by Women’s Designer, Cosmetics
and Accessories. Men’s Apparel and Shoes experienced small sales
declines. The Women’s Designer division benefited from the
addition of new vendors, close scrutiny of developing trends and
a targeted marketing plan. The increase in Cosmetics was primarily
due to the addition of product lines. Accessories improved by
differentiating its product and offering attractive values.
In 2001, net sales increased 1.9% due to store openings. During
2001, we opened four full-line stores, eight Nordstrom Rack stores
and three Façonnable boutiques. We also closed one Nordstrom
Rack store and one full-line store. The net impact was an increase
to our retail square footage of 6%. New store sales were partially
offset by negative comparable store sales and a decline in sales
at Nordstrom Direct. The most significant sales declines were in
Men’s Apparel and Shoes while Women’s Apparel was essentially flat.
In 2003, we plan to open four full-line stores and two Nordstrom
Rack stores, increasing retail square footage by approximately 4%.
Because of the continued challenging retail environment,
comparable store sales are expected to be flat to slightly positive.
Gross Profit
Fiscal Year 2000 2001 2002
Gross profit as a percent of net sales 34.0% 33.2% 33.5%
Gross profit as a percentage of net sales improved in 2002 due
to better inventory management. In our merchandising divisions,
improvement in gross profit rate offset lower sales in certain
categories. Merchandise division gross profit was led by both
Women’s and Men’s Apparel. Additionally, costs related to our
private label operations improved. Total inventory increased as
we added new stores, however, inventory per square foot declined
due to improved performance at full-line stores partially offset by
inventory increases at our Nordstrom Rack division. Total shrinkage
as a percentage of sales was even with the previous year.
Gross profit as a percentage of net sales declined in 2001 due
to increased markdowns and new store occupancy expenses.
The markdowns were taken to drive sales and to liquidate excess
inventory caused by the decrease in comparable store sales.
Inventory declines at comparable stores were partially offset by the
addition of new stores. The comparable stores inventory decrease
was due to a concerted effort to reduce inventory levels during the
year resulting in lower inventory per square foot. Total shrinkage as
a percentage of sales was even with the previous year.
In 2003, we anticipate continuing progress in our ability to improve
gross profit performance through better inventory management.
Selling, General and Administrative
Fiscal Year 2000 2001 2002
Selling, general and administrative
expense as a percent of net sales 31.6% 30.6% 30.3%
In 2002, we recognized a charge of $15.6 million to write-down
an investment in a supply chain tool intended to support our private
label division. Due to changes in business strategy, we determined
that this asset was impaired. This charge reduced this asset to its
estimated market value.
Excluding the effect of the write-down, selling, general and
administrative expenses as a percentage of net sales decreased
in 2002 to 30.1% from 30.6% in the prior year. This decrease
is the result of improvements in bad debt and selling expense and
reductions in sales promotion. These costs were partially offset
by higher distribution costs and higher information systems expense.
Bad debt expense decreased as both delinquency and write-off
trends stabilized. Selling expense decreased primarily due to
continued efficiencies in shipping costs at Nordstrom Direct.
Sales promotion decreased as Nordstrom Direct executed planned
reductions in catalog size and number of mailings consistent with
sales trends. Distribution costs increased primarily due to higher
merchandise volumes and temporary inefficiencies caused by the
implementation of our perpetual inventory system. The information