Nordstrom 2006 Annual Report Download - page 32

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Nordstrom is a fashion specialty retailer offering high-quality apparel, shoes, cosmetics and accessories for women, men and children. We offer
a wide selection of brand name and private label merchandise. We offer our products through multiple retail channels including our Full-Line
‘Nordstrom’ stores, our discount ‘Nordstrom Rack’ stores, our ‘Façonnable’ boutiques, our catalogs and on the Internet at www.nordstrom.com.
Our stores are located throughout the United States and we have 36 Façonnable boutiques located in France, Portugal, and Belgium. In addition,
we offer our customers a variety of payment products and services including our loyalty program.
STRATEGIC INITIATIVES
We believe we are well positioned to grow the value of our business by executing our strategy through the following key initiatives: enhancing our
merchandise offering within our existing product categories, improving the shopping experience for our customers across all channels, and continuing
to increase our presence where our customers shop.
Merchandise Strategies
We’ve found that there’s a great deal of opportunity to grow our sales in existing stores simply by earning a greater share of our customers’ business
across multiple product categories. Our new systems and merchandising disciplines have helped us begin to take advantage of opportunities for
increased sales by enhancing our ability to keep inventories fresh and turn them more rapidly. Customers are responding favorably to “newness”
across all merchandise categories, leading to meaningful gains in areas such as men’s apparel, accessories, women’s and kids’ shoes and cosmetics
throughout 2006. A consistently strong performer in 2006 was our designer category, including apparel, shoes and accessories merchandise. We are
continuing to expand our offering of designer merchandise.
Multi-Channel Shopping Experience
Our future success continues to depend upon our ability to provide our customers with a superior and fully integrated shopping experience. As a multi-
channel retailer, we are uniquely positioned to respond to evolving customer needs and expectations. The necessary resources have been committed
and critical projects are underway in this effort. We are installing a new inventory system, and we are expanding both our fulfillment and call centers
in Cedar Rapids, Iowa.
Our online store is essential to creating relationships with many of our most active and loyal customers. Many customers who start shopping with
us online migrate to our stores. By giving customers a more similar shopping experience in-store and online, we’re making progress to become more
relevant to today’s shoppers.
Increase Our Presence
Given the industry consolidation impacting many of our competitors, we see potential to gain market share and grow our business by increasing our
presence where our customers live. Fortunately, we are in an advantageous position to reach new customers through building stores and enhancing
our current ones. We’ve recently launched a $2.8 billion capital plan, with 80% of the dollars allocated to customer-facing investments, primarily new
stores, remodels and relocations.
We will continue with a disciplined approach to real estate acquisitions, adding new stores when and where they pass our criteria. Our current strategy
calls for a 4% to 5% increase in square footage growth through 2011 with 26 new or relocated stores announced through 2011.
OVERVIEW
For the first time in our history, our earnings before income tax expense exceeded $1 billion in 2006. This result was driven primarily by
the combination of continued sales growth, gross profit rate expansion and leverage of selling, general and administrative expenses.
Key highlights include:
• We achieved positive same-store sales growth for the fifth year in a row. Same-store sales increased 7.5% on top of our 6.0% increase in
2005 and our 8.5% increase in 2004.
• Our gross profit rate increased 75 basis points primarily due to merchandise margin expansion.
• With the sales growth mentioned above, we leveraged our overhead costs, resulting in a 37 basis point improvement in our selling, general
and administrative expense rate.
• Full year earnings per diluted share increased 28.8% over last year to $2.55.
Like many other retailers, Nordstrom follows the retail 4-5-4 reporting calendar, which included an extra week in fiscal 2006 (the 53rd week).
The 53rd week is not included in same-store sales calculations.