What happened

Nordstrom (NYSE:JWN) shares are trailing the market by a wide margin this year. The stock sank 62% compared to a 4% decline in the S&P 500 through the end of June, according to data provided by S&P Global Market Intelligence.

The department store giant was generating modestly lower returns for investors in early 2020, but those losses mounted as the COVID-19 pandemic began disrupting the retailing industry.

Three young women sitting on a bench and looking through their shopping bags

Image source: Getty Images.

So what

Nordstrom's fiscal first-quarter results captured about six weeks of intense social-distancing efforts, and the impact on earnings and sales was stark. Revenue dove 40% through early May, in fact. Gross profit margin sank to 11% of sales compared to 34% a year earlier as the chain leaned on heavy discounting to clear out old inventory. That move left it in a more flexible financial position, but at the cost of a $521 million net loss.

Now what

In late May, CEO Erik Nordstrom and his team noted some encouraging trends in the e-commerce business and rebounding customer traffic as more of its stores reopen. Its 25% inventory reduction in Q1 also suggests investors have seen the worst of the promotional write-offs.

However, this retailer is still likely to face major growth challenges at least into early 2021 due to COVID-19 outbreaks and weak economic trends.