Retail is going through a huge transformation, and even renowned upscale retailer Nordstrom (NYSE:JWN) hasn't avoided having to make some big changes to its operations to try to capture changing consumer preferences. Between the shift toward e-commerce and a greater desire for lower-cost items, Nordstrom has had to come up with strategic initiatives that have dramatically broadened the original scope of its business.

Coming into Thursday's fourth-quarter financial report, Nordstrom investors had hoped that the company would carry some of its positive momentum from earlier in the year and finish 2017 on a strong note. Yet despite posting record numbers in some areas, Nordstrom's results didn't live up to all of those hopes, and the future continues to present challenges for the big-box department store. Let's take a closer look at Nordstrom and what its latest results mean for the coming year.

Nordstrom storefront with a terrace over the entrance with places for people to sit and people walking on the sidewalk outside in front of the store.

Image source: Nordstrom.

How Nordstrom finished 2017

Nordstrom's fourth-quarter results weren't entirely satisfying. Total revenue climbed 9% to $4.70 billion, and that growth rate was actually slightly better than the consensus forecast among those following the stock. However, net income dropped by a quarter to $151 million, and even after accounting for a couple of one-time items, adjusted earnings of $1.20 per share was less than the $1.24 per share that most investors had wanted to see.

Some extraordinary factors affected Nordstrom's results. Tax reform cost the company $51 million, with the noncash charge related to the revaluation of the retailer's deferred tax assets. In addition, the fourth quarter had an extra week compared to last year, which had an incremental boost of $220 million to the total revenue for the period.

Nordstrom's key business metrics were mixed. Comparable sales were higher by 2.6%, although it wasn't immediately clear whether that figure adjusted for the extra week in the period. The company's full-line Nordstrom brand did a good job of doing its part, with comps higher by 2.4% on strength in the kids and men's apparel departments. Off-price specialist Nordstrom Rack once again outperformed, but by a slighter margin, with segment sales growth of 15% coming from a 3.7% rise in comparable sales.

More broadly, Nordstrom celebrated several positive news items for the full 2017 year. Customer counts grew 4% to 33 million, with 6 million new customers coming to the Nordstrom Rack business. Strategic branding and proprietary labels helped lift sales at the full-price Nordstrom unit, and the retailer's Nordstrom Rewards loyalty program saw 35% growth to 10.5 million customers.

Can Nordstrom bounce back?

The big question that remains is whether Nordstrom will keep following its same general path or make a fundamental change. The company seems to be on pace to expand in a manner consistent with its recent past practice, with a dozen new Nordstrom Rack stores expected to open throughout 2018 compared to just a single full-line men's specialty store in New York City.

Reports persist, though, that Nordstrom is looking closely at a leveraged buyout. Members of the Nordstrom family are still closely involved in the company, both from a day-to-day operational standpoint and in terms of stock holdings. Finding financing has proven tricky, but there's still some apparent interest from potential partners that would share in the risk and rewards of going private.

Expectations for 2018 were fairly low. Nordstrom sees sales of $15.2 billion to $15.4 billion for the coming year, with earnings of $3.30 to $3.55 per share. Comparable sales will rise just 0.5% to 1.5%, continuing to reflect a sluggish retail environment. With the top-line numbers implying growth of 2% or less, it'll take continued vigilance to squeeze better profitability from the business.

Nordstrom investors weren't happy with the report, and the stock sank 6% in pre-market trading Friday following the Thursday afternoon announcement. At this point, many shareholders appear to be hoping that the Nordstrom family will find a way to take the retailer private, and despite a strong reputation, Nordstrom's store operations don't look like they're going to deliver the transformational growth that investors really want to see.

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