After months of bad results and even worse predictions, Nordstrom turned in better-than-expected numbers for the second quarter and made a plausible case that its turnaround strategy might be gaining traction.
On Wednesday, the Seattle-based retailer, which has struggled with a tough retail environment and a series of self-inflicted management mistakes, beat Wall Street expectations for the quarter ending Aug. 3.
Earnings came in at $141 million while earnings-per-share were $0.90. That was around 18 percent higher than Wall Street analysts had predicted — a welcome change of pace as the company prepares to launch its biggest-ever store project, a $500 million store in Manhattan, on Oct. 24.
But Nordstrom is hardly out of the woods.
Those quarterly earnings were down 12.9% from the same quarter in 2018. Total sales for the second-quarter also declined by 5.1% year-over-year, to $3.78 billion, and were well below Wall Street’s forecasts.
In explaining the uneven results, Nordstrom officials pointed to several factors. Sales were “soft” during the Anniversary Sale in July, in part because stores fell short of in-demand products. “We simply ran out of our top items,” Erik Nordstrom, company co-president, told analysts during a question-and-answer session after Wednesday’s earnings release.
Likewise for the off-price Rack businesses, which accounts for roughly a third of Nordstrom’s total sales, but saw one of its weakest quarterly performances in years. Net sales at the 242 Rack stores dropped 1.9% from the same quarter in 2018, compared with a 7% increase at The Rack between 2017 and 2018.
The spotty performance overall led Nordstrom to again lower its forecast for the full fiscal year: The retailer now expects net sales to decline by 2% for 2019, compared with guidance from May which predicted sales to run from flat to a 2% decrease.
Still, Nordstrom shares were up as much as 15% in extended trading after the news, after rising 5.5% to $26.54 in regular trading.
That jump may reflect little more than relief by a stock market that was braced for far worse news.
Nordstrom shares have lost more than half their value since last fall and recently were dragged down further by other retailers’ troubles and by reports that some board members want to replace Erik Nordstrom and his brother Pete, who have led the retailer since the death of their elder brother Blake in January.
But Wednesday’s stock bounce could also reflect a nascent belief that Nordstrom may have addressed shorter-term problems even as it continues with its years-long effort to re-engineer itself for a digital marketplace.
During its earnings call in May, Nordstrom acknowledged several “executional misses”, including serious mistakes in its merchandising mix.
During Wednesday’s conference call, Nordstrom officials said the company is aggressively “editing” out poorly performing merchandise based on near-real-time customer data, especially in women’s apparel. Its buyers are also taking advantage of oversupply in the apparel market to restock Rack inventories with bargains.
Nordstrom also touted what it sees as promising results from its longer term strategy to make its physical stores work smoothly with its well-established online ordering platform. In the new system, rolled out last year in Los Angeles, Nordstrom’s brick-and-mortar locations will function both as traditional showrooms but also as depots where online customers can receive and return orders, and get alterations and styling advice.
Preliminary results from Los Angeles show higher per-shopper spending, which the company expects to replicate in Manhattan when it opens its new flagship and several other stores.
But Nordstrom officials also acknowledged continued challenges.
In response to a question about the disappointing Anniversary Sale, company officials noted that its stores must increasingly serve as fulfillment and return centers — roles that have required deep changes in operations and inventory.
Product mix continues to vex. In women’s apparel, Nordstrom still struggles to identify “emerging” trends as quickly as styles now change. Another problem is the continued “casualization” among men, who are buying fewer suits and other traditionally expensive items and resist splurging on casual clothing.
All these challenges will be highlighted at the Manhattan store, which arguably will be the biggest test yet of Nordstrom’s ability to embrace the digital marketplace without losing the high level of customer service and attention to consumer convenience that has been so central to the Nordstrom brand.
As Pete Nordstrom told analysts, “if we’re going to be successful there, it’s going to be by doing the little things better.”