Luxury retail has had to endure very difficult conditions, and for high-end department store retailer Nordstrom (NYSE:JWN), the pressure that the company has seen on its results has been frustrating. Indeed, for Nordstrom family members, who own a substantial minority stake in the retailer, the possibility of a leveraged buyout looked attractive enough for them to announce that they were looking at a potential bid to take the company private.

Coming into Thursday's second-quarter financial report, Nordstrom investors were prepared for bottom-line declines and only tepid gains in revenue. Nordstrom's results were largely in line with the company's expectations, but some signs of improvement were enough to encourage investors about the retailer's future. Let's take a closer look at Nordstrom and what its latest numbers reveal about what's coming down the road.

Outside view of Nordstrom retail location with passers-by on sidewalks.

Image source: Nordstrom.

Nordstrom rebounds

Nordstrom's second-quarter results were solid. Total revenue rose nearly 4% to $3.79 billion, which was better than the less-than-3% growth rate that most investors were looking to see. Net earnings fell 6% to $110 million, but a substantial drop in outstanding share counts limited the damage to the per-share results. Nordstrom posted earnings of $0.65 per share, achieving its own expectations and topping the consensus forecast among those following the stock by $0.01 per share.

Taking a closer look at the numbers, Nordstrom's biggest news was a rebound in its comparable sales figures. Comps were up 1.7% from the year-ago quarter, and the company said that its anniversary sale event went particularly well, topping recent trends.

Of particular note was how the company managed to see its premium brand recover. Revenue for the full-line premium Nordstrom brand rose 2.4%, with a 1.4% rise in comparable sales. The off-price Nordstrom Rack division saw better revenue growth of nearly 10%, but comparable sales gains of 3.1% weren't too far out of line with the retailer's overall numbers. The Eastern U.S. was the top region for both units, and the company said that women's apparel and beauty were the top-performing merchandise categories for the Nordstrom brand.

Nordstrom still felt pressure on the expense side of the income statement. Gross margin fell a quarter point as new store growth boosted occupancy expenses, and overhead costs rose by nearly half a percentage point as a percentage of sales due to the costs of implementing growth initiatives.

Can Nordstrom keep climbing?

The second quarter was a relative lull in Nordstrom's overall strategy toward expansion. The retailer opened a single new Nordstrom Rack store in May, bringing store counts to 354 and boosting its square footage to 29.8 million.

Nevertheless, Nordstrom was able to deliver some good news in its outlook for the full 2017 fiscal year. Net sales growth should come in around 4%, at the upper end of its previous range. Comps will still remain flat, but Nordstrom boosted the bottom end of its guidance range for earnings by $0.10 per share, with the new range coming in at $2.85 to $3 per share.

More importantly, Nordstrom is seeing some signs of fundamental strength in its business. Nordstrom proprietary labels represented three of the five top sellers at the anniversary sale, which showed how the retailer is aiming to keep its product lines fresh and appealing. Its loyalty program has grown by more than half from year-ago levels, with 9.4 million active members of Nordstrom Rewards. Online sales for were up 20%, including having its largest volume day in the company's history, and off-price performance was even stronger at 27%.

Nordstrom investors were pleased with the numbers, and the stock climbed higher by 3% in the first hour of after-hours trading following the announcement. The possibility of a buyout is still out there, and that will introduce uncertainty going forward. Yet it's still good both for Nordstrom shareholders and for the industry as a whole to see that strong execution can still produce solid results.

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