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Nordstrom shares jump after delivering strong profit, even as sales weaken in the second quarter

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Nordstrom shares jump after delivering strong profit, even as sales weaken in the second quarter

Nordstrom’s stock soared by more than 21% after the company released a mixed earnings report that showed weakening sales, but handily beat Wall Street profit estimates.

Here’s how the company did, compared with what Wall Street was expecting, according to Refinitiv consensus estimates:

  • Adjusted earnings per share: 90 cents, vs. 75 cents estimated
  • Revenue: $3.87 billion, vs. $3.93 billion estimated

“We delivered strong bottom-line results, demonstrating our inventory and expense discipline. We exited the quarter in a favorable inventory position and made important strides in productivity,” said Erik Nordstrom, co-president of Nordstrom.

Investors traditionally respond well to strong inventory discipline, which Nordstrom cited as a key driver in this quarter’s earnings beat. The company said inventory was down 6.5% over last year, marking the second consecutive quarter of positive spread between inventory and sales. In comparison, Macy’s last week said in their second-quarter earnings report that it used heavy markdowns and discounts to clear inventory, as shares tanked 13% that day.

Sales at full-price department stores were down 6.5%, while sales at its off-price Nordstrom Racks fell 1.9%.

The company slashed their net sales guidance for the fiscal year and earnings guidance. It forecasts net sales for the year to decrease by about 2%. It previously estimated sales would be flat to 2% down. It also slightly lowered guidance on earnings per share to a range of $3.25 to $3.50, compared with the prior guidance of between $3.25 to $3.65.

On an unadjusted basis, net income fell by almost 13% to $141 million, or 90 cents a share, compared with $162 million or 95 cents a share a year earlier.

Nordstrom also said its digital sales, which represent 30% of the business, grew 7%. In the same quarter last year, its digital sales represented 28% of its total sales. 

The company is among a host of department stores that is struggling to grow sales. Annual sales at U.S. department stores have dropped 20% from 2017 to 2018, and are on pace to fall more this year, according to the U.S. Census Bureau. Nordstrom’s stock has fallen 57% in the past year, valuing the company at $4 billion.

Tariffs on Chinese apparel and accessories also loom over Nordstrom, as retailers across the board work to keep costs low for the consumer.

Nordstrom’s first department store for women is set to open in New York City on Oct. 24. It marks the largest single-project investment in the company’s history. It also opened up a men’s store in April 2018 and previously only operated a small handful of off-price Nordstrom Racks in the city.

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