A retailer beating financial results from 2020 is no big deal. It's a low bar to step over when going up against a period when most of your stores were closed for a good part of the quarter.
The hard thing to do is to show you can actually top the performance from two years ago, before the COVID-19 pandemic struck, and unfortunately, Nordstrom (JWN -2.33%) failed to do just that.
The upscale department store retailer beat analysts' sales and earnings forecasts, and even raised its full-year guidance, but the results were below what Nordstrom achieved in 2019, indicating things might not get any better for the company going forward.
Image source: Getty Images.
Tough comparisons
Both Nordstrom's top and bottom line topped last year's results. Sales of $3.5 billion were twice what it reported a year ago and earnings of $80 million showed a sharp reversal from the $255 million loss it posted.
Yet sales were below the $3.7 billion the retailer generated in the same quarter two years ago, and net income was 43% lower. When even struggling retailers like Macy's (M -1.52%) and Kohl's (KSS -2.01%) were able to show improvement on a two-year stack, it's clear Nordstrom has problems.
Its full-price namesake stores saw sales decline 5% compared to 2019. Its off-price Rack chain fared even worse, with sales slumping 8% versus two years ago. Analysts at JPMorgan Chase point out Nordstrom's revenue this quarter was 9 percentage points below its department store peers, while Rack sales were 25 percentage points lower than off-price peers like Macy's Backstage and TJ Maxx.
The outlook is little better. While Nordstrom raised its full-year revenue growth guidance from 25% to 35% compared to 2020, operating margin is still expected to come in 2 full percentage points below 2019.
As good as it gets
Rather than leading the department store recovery, Nordstrom is merely drafting behind others and benefiting from the rising tide that's lifting all boats.
It should have been a good time for the retailer. With the economy reopened, consumers who were returning to the office were refreshing their closets. Nordstrom also held its annual anniversary sale during the quarter, which helped push its sales higher. While it typically holds the sale during the summer months, and management says sales exceeded 2019's event by 1%, its upscale clientele weren't returning in sufficient numbers relative to the rest of the sector.
Moreover, the shopping event pulls sales forward from later periods, which could result in a greater hangover for the third and fourth quarters. The recovery for Nordstrom is going to be a longer-term affair than at other retailers.
With the stock sitting almost 40% below its 52-week high, shares trade at 12 times estimated earnings and only a fraction of its sales. While it may look like an attractive level to buy in, investors should continue to avoid Nordstrom's stock.
More room for improvement
Despite the rebound in sales at most department stores, the sector is not healthy. It suffered from declining foot traffic before the pandemic struck as more people shopped online, and that's only continuing to be the case today, even for Nordstrom.
It reported digital sales increased 30% over last year and 24% over the second quarter of 2019. That's actually a cause for hope for the upscale retailer, but those gains are not enough to make up for the loss of customers at its stores.
Mobile-device location data from analytics company Placer.ai found foot traffic at the retailer in July was lagging 2019's result, with visits to its stores falling 4.6% at Nordstrom and 3.2% at Rack compared to the same month two years ago. And even when they did show up, they weren't spending much time there, with the length of stay down nearly 20% compared to 2019.
Nordstrom still has to prove that it has the right styles, selection, and inventory to meet its consumers' needs and that it can grow once again. It's not dead, but the retailer hasn't reached the recovery point, either, and that means Nordstrom's stock may still have more room to fall.
