Image source: Nordstrom.

What happened

Shares of department store chain Nordstrom (NYSE:JWN) rose 14.1% in August, according to data provided by S&P Global Market Intelligence. A mixed earnings report featuring a decline in comparable-store sales was more than offset by a significant earnings beat, an increase in guidance, and news that a major competitor was slashing its store count.

So what

Nordstrom reported second-quarter revenue of $3.65 billion, down 1.4% year over year and about $30 million lower than the average analyst estimate. Total comparable sales dropped 1.2%, with a 2.3% decline at the company's full-line stores more than offsetting a 5.3% increase at Nordstrom Rack locations. The company blamed the timing of an anniversary sales event for the decline, saying that it affected comparable sales by 250 basis points.

EPS came in at $0.67, down from $1.09 during the prior-year period but $0.11 higher than analysts were expecting. Gross margin declined 101 basis points year over year due to increased markdowns, while total operating expenses rose 7.4% despite the sales decline. Share buybacks over the past year knocked down Nordstrom's diluted share count by 9.7%, helping boost per-share numbers.

With earnings coming in better than expected, Nordstrom raised its guidance for the full year. The company maintained its expectations for comparable-sales growth between negative 1% and positive 1%, but increased its EPS guidance to a range of $2.60 to $2.75. That's up from a previous range of $2.50 to $2.70.

Another factor that may have contributed to Nordstrom's gains during August was the announcement by fellow department store Macy's that it was closing about 100 full-line stores, representing 15% of its total store base. Fewer stores could help Macy's profitability, but it could also help Nordstrom by reducing competition.

Now what

Despite beating analyst estimates for earnings, Nordstrom still produced a significant earnings decline, and full-year earnings are set to be the lowest for the company since 2009, even with substantial share buybacks. Nordstrom is still growing its store base, but the company will need to return to comparable-sales growth in order to improve its profitability. That may be tough in an environment where most department stores are struggling.

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