Nordstrom Shares Plunge After Profit Misses Analysts' Estimates

Retail Results: Bad Economy or Bad Strategies?

Nordstrom Inc. joined Macy’s Inc. in posting woeful results last quarter, renewing concern that U.S. shoppers are skipping a trip to the mall and spending their money on cars, homes and iPhones instead.

Nordstrom’s profit shrank to 57 cents a share in the period, excluding some items, the company said on Thursday. Analysts had projected 72 cents on average. Sales also missed estimates, even at the company’s once-hot Nordstrom Rack outlet chain.

The problem? Department stores aren’t drawing the same foot traffic. Though the job market is improving and the U.S. economy is chugging along, Americans would rather spend their money elsewhere. Nordstrom’s results sent its shares down 15 percent on Friday, the biggest decline in more than 15 years. That follows a similar swoon for Macy’s after it released weak earnings earlier this week.

“It’s kind of bizarre,” said Dorothy Lakner, an analyst at Topeka Capital Markets in New York. “People have money. The economy isn’t bad, but they’re not spending on apparel.”

Nordstrom’s stock tumbled $9.51 to $53.96 in New York, the biggest decline since July 2000. The shares had already slid 20 percent this year through the close of regular trading Thursday.

Cautious Outlook

Even J.C. Penney Inc., which beat sales estimates in the third quarter, is approaching the holiday cautiously. The retailer didn’t raise its annual guidance despite posting a same-store sales gain of 6.4 percent last quarter. That exceeded the 4.5 percent increase analysts expected.

J.C. Penney shares fell 15 percent to $7.44 in New York on Friday. The company, benefiting from a turnaround plan, had gained 36 percent this year through Thursday.

Retailers and clothing suppliers have struggled to pare down excess inventories, forcing them to rely more on discounts. Nordstrom’s results reflected softer sales “across channels and merchandise categories,” the Seattle-based company said.

“It’s just a traffic problem," James Nordstrom, president of stores, said on a conference call. “We’ve got less people buying clothes this quarter than we expected.”

Squeezing Margins

Markdowns also took a toll on profit last quarter, the company said. But that may help Nordstrom in the holiday period, according to Lakner.

“The good news is at Nordstrom, they cleaned their inventory,” Lakner said. “They made adjustments to the fourth quarter. They’re in a pretty good position.”

Nordstrom’s same-store sales, a closely watched benchmark, grew just 0.9 percent last quarter, which ended Oct. 31. Analysts had estimated 3.6 percent, according to Consensus Metrix. Sales fell 2.2 percent at the Rack chain, missing a projection for growth of 2.8 percent.

The company now expects earnings of $3.40 to $3.50 a share this year, excluding some items. That’s down from an earlier forecast of as much as $3.80.

An unseasonably warm autumn also has been blamed for sluggish sales at U.S. retailers. Macy’s said earlier this week that the weather hurt demand for coats, sweaters and boots.

But Nordstrom didn’t see that as a problem. Consumers just didn’t show up.

“There is really not a seasonal component to where we have seen transactions slow down,” James Nordstrom said. “Our coat business has been really strong.”

Before it's here, it's on the Bloomberg Terminal. LEARN MORE