Shares of upscale retailer Nordstrom (JWN 0.58%) have had a rough week, falling 18.8% through Thursday's close following a sell-off triggered by Tuesday's second-quarter earnings report.
But at first glance, Nordstrom's earnings report was a good one, with sales and profit both coming in ahead of expectations. What drove the sell-off, and was it justified?
Nordstrom's second-quarter revenue and earnings both came in above the company's own guidance and above Wall Street's consensus estimates. Sales of $3.56 billion were double its year-ago results, and the bottom line showed a profit of $0.49 per share. That was a double beat: Wall Street analysts polled by Thomson Reuters had expected a profit of just $0.28 per share on sales of $3.31 billion.
But as my colleague Adam Levine-Weinberg pointed out earlier today, while Nordstrom's better-than-expected sales and return to profitability were both positive signs, the company's results still fell well short of its performance in the second quarter of 2019, before the pandemic, when it earned $0.90 per share on sales of $3.78 billion.
Likewise, while Nordstrom boosted its full-year guidance, even its more upbeat forecast still assumes that its operating margin will be down more than 2 percentage points from its fiscal 2019 result.
None of that is terrible news, of course: Nordstrom is making good progress. But consider that several other department store chains, including long-struggling Macy's, recently reported results that exceeded their pre-pandemic 2019 comps. In that context, it's not hard to understand why Nordstrom's investors were disappointed with Tuesday's report.
If you've been in a Nordstrom store recently, it's not too hard to understand why the company's recovery might be lagging mass-market rivals like Macy's. Nordstrom's apparel and accessories inventories lean toward dressier styles, not the more casual fashions that consumers working from home have favored in the COVID-19 era.
The takeaway here is that patience could be rewarded. As the pandemic fades, as weddings and special events resume, and as Americans and Canadians return to office settings, Nordstrom's sales and earnings should rebound to more satisfying levels.