These 2 Stocks Just Dropped After Hours

The stock market kept rising on Tuesday, with modest gains adding to Monday's rally. The S&P 500 (^GSPC 0.02%) joined the Nasdaq Composite (^IXIC 0.10%) at record levels, while the Dow Jones Industrial Average (^DJI -0.11%) had to settle for the smallest gain of the major indexes.

Data source: Yahoo! Finance.

However, there were some hints of discontentment in the after-hours session, as a couple of retail stocks reported disappointing earnings results. Both Nordstrom (JWN -2.33%) and Urban Outfitters (URBN -0.43%) lost ground, and what they said could cast a shadow over the idea that the vaccination-led economic recovery will inevitably produce strength across the retail industry.

Nordstrom can't satisfy shareholders

Shares of Nordstrom fell more than 7% on Tuesday afternoon after the close of the regular session. The department store retailer's second-quarter financial report had some positive points, but investors simply weren't content with the progress Nordstrom has been making lately.

Image source: Getty Images.

Nordstrom's numbers reflected the challenges of pandemic-related lockdowns in the year-ago period, but they also signaled some failures to recover fully. Net sales more than doubled year over year, but they were down 6% from the same period in 2019 before the pandemic. The company had some success with its annual anniversary event, with sales rising 1% from 2019 levels, taking calendar effects into account.

CEO Erik Nordstrom attributed the gains to the strength of its namesake high-end stores and its Nordstrom Rack off-price store concept. In particular, the company is trying to broaden the reach of Nordstrom Rack by expanding price points, which helped lead to improving sales compared to the first quarter of 2021. Meanwhile, ongoing progress in boosting digital sales pointed to the wisdom of Nordstrom's investments in its digital channel.

Even with a raised outlook calling for 35% revenue growth for 2021, though, shareholders wanted to see Nordstrom take greater advantage of the rebound. With the stock still significantly below its all-time highs from the mid-2010s, the retailer has a long way to go to fully satisfy its investors.

Urban Outfitters gives back gains

Urban Outfitters also saw losses in the after-hours session, although in its case, it merely gave back gains from earlier in the day. Urban Outfitters finished regular trading up more than 5%, but then fell almost 5% following its earnings release.

The early gains came from news that Urban Outfitters would launch a resale marketplace for apparel and accessories. Nuuly Thrift will tap into the heavy demand among consumers for secondhand goods, and Urban Outfitters investors especially liked the idea given the company's efforts to tap into fashion trends in a distinctive way.

Urban Outfitters also seemed to do well in its financial results. Compared with pre-pandemic levels two years  ago, revenue jumped more than 20%, with digital channel growth easily offsetting negative retail-store sales comparisons because of lingering impacts of the pandemic. The Free People store concept did the best with 53% sales gains, followed by 20% from the namesake brand and 14% for Anthropologie.

Again, though, the drop in the stock reflects the extremely high expectations shareholders have for retailers to bounce back convincingly. In that light, even the solid results from Urban Outfitters and Nordstrom in recent periods don't appear to have been enough, and that could cause problems for the entire retail industry if conditions don't improve more quickly.