It's Not a Great Time to Be a Department Store

Following disappointing results from Macy's, Nordstrom said on Thursday that it missed profit and sales forecasts for the third quarter.
Avatar:
Lauren Indvik
Author:
Publish date:
Social count:
468
Following disappointing results from Macy's, Nordstrom said on Thursday that it missed profit and sales forecasts for the third quarter.
Photo: Justin Sullivan/Getty Images

Photo: Justin Sullivan/Getty Images

While the vast majority of U.S. department stores have struggled since the economic recession, Nordstrom has remained a sterling exception. So when the Seattle-based retailer announced on Thursday that it had seen an unexpected slowdown across all its businesses in the third quarter— and that it didn't expect things to get any better over the holidays — investors and analysts were sorely shaken. The company's stock price dropped more than 20 percent to $50.45 per share in after-hours trading.

In the three months ending Oct. 31, net earnings amounted to $81 million, or 4.8 percent of sales, compared to net earnings of $142 million, or 8.6 percent of sales, in the same period a year ago. Net sales across all of Nordstrom's businesses, including its off-price Nordstrom Rack chain, Nordstrom.com and Hautelook.com, came in at $3.2 billion, up 6.6 percent year-over-year, while comparable sales (that is, revenue from stores open for at least a year) were up a marginal 0.9 percent.

What's causing the slowdown? Nordstrom's execs were a bit stumped. "Every category took a step down in terms of trend, and that's about it," Jamie Nordstrom, president of stores, said on Thursday's earnings call, noting that beauty sales performed particularly well. Sales of coats and boots were also pretty strong, he added, suggesting the weather wasn't to blame. When asked if Nordstrom's performance was symptomatic of a larger shake up in retail, Co-President Blake Nordstrom replied, "We've said this many times, we're not economists, we're merchants. All we can tell you in our business is we saw a slowdown… Ultimately our customer is saying something, and we need to get after it."

Nordstrom execs said they plan to keep on doing what they've been doing — "managing our inventories appropriately, making sure our website has the right stuff to sell" — but that they didn't expect things to substantially pick up over the holidays. As such, they lowered their full-year sales guidance: Sales are now estimated to only increase 7.5 to 8.5 percent for the full fiscal year, versus an earlier estimate of 8.5 to 9.5 percent. Gross profits are also now expected to decrease 50 to 60 percent year-over-year.

Nordstrom wasn't the only one to have a tough third quarter. Macy's saw sales decline 5.2 percent, which CEO Terry Lundgren largely blamed on a nationwide decrease in spending on apparel and accessories. Luxury brands aren't faring much better, with demand continuing to weaken in China.