Barely a day after confirming the opening date for its massive new flagship store in New York City, Nordstrom reported a sharp drop in first-quarter profits and faltering sales, thanks to continued softness in physical retail and a bungled update to its loyalty program.
Net earnings for the first quarter of fiscal 2019 were $37 million, a 57% decline from the same period last year. The Seattle-based retailer’s downbeat results echoed similarly poor first-quarter numbers for J.C. Penney and Kohl’s, which also reported Tuesday.
Investors weren’t pleased. Nordstrom’s first-quarter earnings of 23 cents per share were 47% below analysts’ expectations, a surprise that sent its share price plunging more than 9% in after-hours trading, to $34.20.
Nordstrom’s net sales for the quarter ended May 4 dropped 3.5%, to $3.44 billion. That was lower than Nordstom itself had forecast at the start of the year. “While we expected softer trends from the fourth quarter to continue into the first quarter, we experienced a further deceleration,” co-president Erik Nordstrom acknowledged in a company statement Tuesday afternoon.
Like other upscale brick-and-mortar retailers, Nordstrom has struggled against competition from online retailers such as Amazon and from discount retailers. But the company was also hurt by several strategic errors, according to Erik Nordstrom, adding, “we had some executional misses with the customer experience.”
For example, in its Nordy Club rewards program, which accounted for 60 percent of first-quarter sales, the retailer shifted away from the practice of sending paper notes to customers, “but later discovered that a segment of our customer base relies on receiving these notes by mail,” Nordstrom said. “As a result, we saw a reduction in traffic across Full-Price and Off Price.”
Compounding that error, the company had cut its digital marketing budget to spend more on its loyalty program, which did not deliver expected results.
The company also blamed its merchandise mix, particularly in women’s apparel.
All told, the retailer suffered declining sales in both its full-price and off-price operations, which slumped 5.1% and 0.6%, respectively, in the first quarter. Online sales were up 7% over a year ago, but that increase was less than half the rate posted between 2017 and 2018.
Nordstrom’s latest results will only add to the impression that the retailer, famous for its upscale products and gold-plated customer service, is losing its mastery in physical retail even as it struggles to gain market share online.
Since 2015, Nordstrom has seen its share price fall by more than half, despite efforts to prop up the share price through large share repurchases. In the first quarter alone, Nordstrom spent $186 million buying back its own shares on the open market.
There were positives notes in Tuesday’s earnings call. The company has already revamped its loyalty program, and, “Our initial results showed improving trends for engagement, traffic and spend from our loyalty customers,” Nordstrom said. The company is also investing more in online marketing and making adjustments to its merchandise mix.
Nordstrom is on track to open a huge new brick-and-mortar location: a seven-story, 320,000-square-foot megastore on West 57th Street in New York City. Scheduled to open Oct. 24, according to Bloomberg, the flagship store is intended to enable Nordstrom to compete head-to-head with its main luxury rivals, including Bloomingdale’s and Saks Fifth Avenue.
Overall, Erik Nordstrom said, the long-term outlook for the company remains bright. “This is well within our control to turn around,” he said.
Even so, Nordstrom downgraded its financial projections for 2019: Where the retailer had initially hoped for a 1% to 2% increase in sales, it now expects anywhere from zero growth to a 2 percent decline.