Nordstrom Plunges on Lower Forecast, Adding to Retail Woes

What Happened to U.S. Retailers?
  • Investors fear that consumers are changing the way they shop
  • The outlook follows a similiarly bleak forecast from Macy’s

Nordstrom Inc. fell as much as 16 percent in New York trading after cutting its annual forecast, adding to evidence that the department-store industry is mired in a deep slump.

The company now expects earnings of $2.50 to $2.70 a share, excluding the impact of stock buybacks, according to a statement Thursday. Nordstrom had previously forecast as much as $3.35. It also reduced its sales growth predictions to between 2.5 percent and 4.5 percent, down from as much as 5.5 percent.

The outlook jarred investors a day after Macy’s Inc. gave a similarly bleak forecast. The fear: Consumers are shifting their spending away from clothing and other department-store wares, potentially leaving the companies in a long-term funk. Kohl’s Corp. also posted disappointing results on Thursday, saying simply that shoppers weren’t buying apparel. J.C. Penney Co. followed on Friday with weaker-than-projected sales.

“It’s a bloodbath,” said Poonam Goyal, a retail analyst at Bloomberg Intelligence. “There’s a structural change in how consumers shop, and for some reason everything flipped in March.”

Nordstrom shares fell as low as $38 on Friday following the previous day’s report. That marked the biggest intraday drop since November. Even before the tumble, the stock was down 9.2 percent this year.

For a quick wrap of the analyst commentary on Nordstrom today, click here.

The U.S. Commerce Department posted surprisingly strong retail sales figures for April on Friday, with purchases climbing the most since March 2015. But the benefits aren’t being distributed evenly. Auto dealers, grocery stores and online merchants had the biggest gains.

In Flux

Department-store chains have been dogged by a range of problems. There’s no major fashion trend to bring in shoppers, and many younger customers are opting to buy apparel online instead. But also consumers are spending more of their money on technology or experiences, rather than clothing. That means they may wear an old outfit a bit longer than before and budget those funds toward something else.

The pace of change in the retail industry is accelerating, Co-President Blake Nordstrom said in the statement. To cope with the shift, the company is cutting expenses and reducing its capital investments. That includes adjusting inventory.

“We remain committed to serving customers by taking steps that will continue to meet their expectations while driving profitable growth,” he said.

Capital Spending

The retailer said in February that it will slash capital spending by $300 million over the next five years. This year, Nordstrom will spend about $900 million on investments, including $300 million on new stores in Canada and its first location in Manhattan.

As part of its belt tightening, Nordstrom is cutting as many as 400 jobs, mostly from its corporate center and regional support teams. It has said that it aims to save about $60 million this fiscal year. The moves will be completed by the end of the second quarter, Nordstrom said last month.

In the old days, retailers would try to bounce back by freshening up their product line. But if it’s a structural change in how consumers shop, that’s not so easy.

“They’re spending in different places -- that’s what’s killing them,” Goyal said. “I don’t think it’s a product issue.”

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