The Seattle retailer’s quarterly earnings came in above predictions, though sales at its full-line stores were down 6.5 percent. An analyst warned that “there’s nothing to suggest we’re back to the heyday.”
Despite sales that dipped and profit that plunged in its second quarter, Nordstrom shares soared Thursday after the company reported earnings that handily beat investors’ expectations.
The Wall Street beat came after several quarters of missing expectations amid an overall retail plunge that saw Nordstrom announcing cuts of some 400 positions and department-store king Macy’s announcing cuts of more than 4,000.
Thursday offered a bit of cheer amid that gloom, with Macy’s and Kohl’s both reporting better than expected results earlier in the day.
That prompted a 17 percent jump in Macy’s shares, a 16 percent boost in Kohl’s, and even a nearly 8 percent jump in Nordstrom’s shares.
Most Read Business Stories
Nordstrom’s stock rose again — by about 11 percent — once it reported its results after the market closed. It was trading Thursday afternoon at $52.75.
Analysts voiced caution about the unexpectedly good results, however. “They raised the bar a little bit. But there’s nothing to suggest we’re back to the heyday,” said Richard Church, managing director for retail for investment-research firm Discern Group.
Nordstrom attributed the improved performance to conservative and careful management of its inventory and expenses, and the strength of its crucial anniversary sale, which logged an all-time high in sales volume.
The company reported earnings of 67 cents per share, down 39 percent from the same quarter a year ago, and total sales of $3.65 billion, down 1.4 percent.
The earnings topped Wall Street forecasts of 55 cents per share, while sales met expectations of $3.65 billion, according to a Zacks consensus estimate.
Thanks to a shift in the weeks of the anniversary sale this year, part of the strong results from the sale will also be reflected in third-quarter earnings.
The company also boosted its previous earnings outlook of $2.50 to $2.70 per share for the year, to $2.60 to $2.75.
Yet beneath the earnings beat, some troubling trends remain.
Comparable sales — meaning sales at stores open at least a year — decreased 1.2 percent from the year-ago period, in part due to the shift in the anniversary sale dates.
More troubling was that Nordstrom’s full-line, brick-and-mortar stores continued to see declines, with comparable sales down 6.5 percent.
Nordstrom’s full-line online site fared better, with comparable sales increasing 9.4 percent.
The company’s discount stores saw sales increases, with Nordstrom Rack comparable sales up 1.1 percent and Nordstromrack.com/HauteLook up 34.7 percent.
The surge in Nordstrom’s share price notwithstanding, “when you look inside the quarter, it still points to a consumer that’s searching for value,” said Discern Group analyst Church. “This quarter suggests maybe things hadn’t been quite as bad as they initially expected.”
What stands out about Nordstrom and makes it different from competitors such as Macy’s, Church said, is that it does a “great job of staying new with its merchandise, staying new with what their customers see. And customers will give them credit for that.”
Indeed, Nordstrom Co-President Blake Nordstrom said in a conference call with investors Thursday that its efforts to “grow relevant brands that have limited distribution” — including Ivy Park, Madewell and Charlotte Tilbury — play an important role in attracting new customers.
Those brands now make up the majority of the company’s top 20 fastest-growing vendors, he said.
New program a hit
The company’s expanded loyalty program, which it launched in May to allow customers without a Nordstrom card to earn points toward rewards, has seen success with about 1.5 million customers signing up.
Overall, Nordstrom now has 6 million rewards members. Those who have Nordstrom cards earn 2 points for each dollar spent while those without earn 1 point for each dollar spent.
Once customers accumulate 2,000 points, they get a $20 Nordstrom Note to spend at Nordstrom stores.
Signing up a customer for the program allows the company to deliver a more personalized experience — “that, long term, is what we’re particularly excited about,” Co-President Erik Nordstrom said during the conference call.
Shift to online sales
Though its online sales grew in the quarter, and the company has been lauded as a brick-and-mortar department store that is making the right moves online, the shift to online sales also upends Nordstrom’s traditional business model.
“Our expenses, particularly in technology, supply chain and marketing, grew faster than sales,” Mike Koppel, Nordstrom’s chief financial officer, said during the conference call. “We’re continuing to make operational changes to right-size this trajectory.”
Nordstrom’s online growth may also have helped weaken sales at its brick-and-mortar stores as customers bought online rather than in person, Carter Harrison, retail analyst at research firm Conlumino, wrote in a note.
But “Nordstrom is, at least, cannibalizing its own sales rather than allowing other online players to do the job for them,” he wrote.
Harrison noted that while Nordstrom’s quarterly results were weak, its declines were more recent than its competitors’ and are being judged against “stiff comparatives from last year when total sales rose by a market beating 9.2% and comparable sales increased by 4.9%.”