Nordstrom Clears the Racks

It was a tumultuous first quarter, but many retailers have hunkered down into inventory and other cost controls until the consumer climate becomes brighter. 

Upscale department store chain Nordstrom (NYSE: JWN  ) is a case in point -- last night it reported that total first-quarter sales fell 3.8% to $1.9 billion. Profits tumbled 10% from last year. But with share buybacks, the per-share figure dropped a much less 10%, beating what analysts were projecting.

Management boasted that reining in inventory and expenses helped it offset a sales decline that saw same-store sales drop 6.5%, much worse than the 3% to 5% it originally called for. As with more middle-of-the-road rivals like J.C. Penney (NYSE: JCP  ) and Kohl's (NYSE: KSS  ) , Nordstrom also marked down its apparel and other merchandise to move inventory into customer shopping bags and out the door.

This served to squeeze gross profit, but helped lower inventory per square foot by 7% -- although 3% of that was due to the sale of its boutique Faconnable business.

The retail environment will stay cloudy at best for the next few quarters. That realization caused Nordstrom to lower its full-year earnings forecast range by $0.10, to $2.65-$2.80, as it sees total comparable sales falling 4%-6%, with a partial offset by maintaining that tight rein on costs.    

The opening of four new full-line namesake stores during the quarter (it also operates 50 Nordstrom Rack discount stores) helped make up for more challenging top-line trends at existing stores and brought the total store count to 159. The small store base leaves Nordstrom plenty of room to expand as it competes with high-end rivals such as Saks (NYSE: SKS  ) and Neiman Marcus. 

Whether they're high-, medium-, or lowbrow operators, all are proving vulnerable to rising fuel, food, and other commodity costs. They'll have to continue to focus on keeping costs low until the door toward more favorable top-line trends opens again.  

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