What happened
Shares of Nordstrom (JWN 4.40%) were going on the discount rack today after the high-end department store chain and off-price retailer posted underwhelming results in its first-quarter earnings report and slashed its outlook for the year. Tracking with a trend in its department store peers, Nordstrom's top and bottom lines both missed the mark as the company blamed "executional misses" for the weak performance. As of 12:28 p.m., the stock was down 9.5%.
So what
Overall revenue fell 3.3% in the period to $3.44 billion, widely missing estimates at $3.57 billion. Performance in its full-line division was especially troubling as net sales fell 5.1%, compared with a 0.6% decline in its off-price segment. Digital sales, which has been a bright spot for the company, grew just 7% in the quarter, and made up 31% of total sales.
A drawing of the Nordstrom store to open in Manhattan. Image source: Nordstrom
Nordstrom stopped reporting comparable-store sales, because it said in its previous report that it believes net sales are now a reasonable approximation of comps.
Further down the income statement, gross margin declined 60 basis points to 33.5% due to planned markdowns to trim inventory and because of the decline in comps, which caused occupancy costs to rise as a percentage of sales. Selling, general, and administrative expenses rose 168 basis points to 34% as fixed expenses deleveraged as well. As a result, operating income fell by nearly half to $77 million, and EPS plunged from $0.51 to $0.23, well below expectations at $0.43 a share.
Co-president Erik Nordstrom expressed disappointment with the results:
While we expected softer trends from the fourth quarter to continue into the first quarter, we experienced a further deceleration. We had executional misses with our customers, and we're committed to better serving them. This is well within our control to turn around.
Now what
Though Erik Nordstrom sees potential for improvement, the company's full-year outlook wasn't very encouraging. Management slashed EPS guidance from a range of $3.65 to $3.90, to a range of $3.25 to $3.65. It also said it now sees net sales landing between a 2% decline and flat, compared to its prior outlook of 1% to 2% growth.
After today's sell-off, the stock is at an eight-year low near $34, a sign of how far things have unraveled since the board rejected a buyout offer from the founding family to take it private at $50 a share. Nordstrom has some positive catalysts to look forward to, including the opening of its new flagship in New York, but it's clear the company is in a hole after the latest quarter.
