Image: Nordstrom Rack.

In the retail world, building customer loyalty is essential, and Nordstrom (NYSE:JWN) has built an impressive reputation for good customer service and high-quality merchandise. Yet coming into Thursday afternoon's fiscal second-quarter financial report, Nordstrom investors had seen shares fall back from their all-time highs earlier this year, as some feared that the best of times for the luxury end of the retail segment might be coming to an end.

For its part, though, Nordstrom gave investors an optimistic assessment of the current state of affairs in high-end retail, with solid growth in sales, and better performance on the earnings front than most investors had expected. Let's take a closer look at Nordstrom's latest quarter, and what lies ahead for the department-store retailer.

Nordstrom looks prettier
Nordstrom's fiscal second-quarter results were largely in line with what the retailer had expected. Sales jumped 9%, to $3.70 billion, topping the $3.67 billion consensus forecast among investors. Net income climbed 15%, to $211 million. Although Nordstrom said that a one-time gain was responsible for a substantial part of the rise, adjusted earnings of $0.93 per share were nevertheless $0.03 more than most investors were looking to see.

Nordstrom saw a number of favorable factors drive its strong performance. Comparable-store sales rose 4.9%, with 20% growth in sales on the website. The company saw its best results in the southern half of the U.S., and even though the full-line Nordstrom department store segment only saw comps growth of 0.8%, the company said it still reflected positive sales trends. Nordstrom also called out a successful Anniversary Sale, which is the retailer's most important event of the year.

Cosmetics and Women's Apparel were the merchandise categories with the best gains, as the company succeeded in appealing to younger customers. In addition, Nordstrom's two-part strategy once again paid off, with sales in its off-price discount business rising 16% on strength from Nordstrom Rack's retail and e-commerce channels.

At the same time, Nordstrom highlighted its expansion efforts. The company's acquisition of menswear service Trunk Club helped appeal to male customers, while Nordstrom also said that its new Canadian presence has paid off well. The retailer anticipates adding a new store in Vancouver to augment its exposure to Canada. Although the acquisitions added to overhead costs, they nevertheless helped demonstrate the success of part of Nordstrom's overall growth strategy.

Finally, Nordstrom recognized gains from the pending sale of its branded Visa and private-label consumer credit card portfolio, as it reclassified its receivables as being held for sale in anticipation of the closing of the transaction. The deal will provide about $1.8 billion when it closes, after taking into account transaction costs and debt amounting to $325 million. Nordstrom hasn't yet decided how to use the cash, but it did say that it can fund its long-term growth through its current operations, which opens the door to a special dividend, or further strategic acquisitions.

Will Nordstrom keep climbing?
Nordstrom also announced an increase in guidance for the full fiscal year. The company now believes that it will see net sales rise by 8.5% to 9.5%, up from the prior 7% to 9% range, and a similar rise in comparable-store sales will amount to a range of 3.5% to 4.5%. Gross profit will hold steadier than previously expected, and projected adjusted earnings of $3.85 to $3.95 per share were $0.15 to $0.20 higher than the previous range, and well above what investors were expecting for the full year.

Nordstrom also remains committed to supporting its share price through stock repurchases. The retailer said it spent $233 million to buy back 3.1 million shares of its stock, and it still has another $736 million available to make future buybacks if it chooses.

Still, in the long run, Nordstrom has done a good job balancing its attention between high-end luxury shoppers and lower-end bargain-hunting customers. By tapping into both segments of the retail market, Nordstrom has given itself some customer diversification that could help it avoid the fate of some of its peers that are more concentrated in one segment or the other.

Nordstrom shares celebrated the results and guidance boost, climbing nearly 5% in the first hour of after-market trading following the announcement. With confirmation that sales are holding up despite some headwinds at the higher-end of the retail spectrum, Nordstrom looks poised to continue cashing in on its strong reputation, and produce even further growth.