by Susan J. Aluise | November 15, 2013 8:52 am
Nordstrom (JWN) reported third-quarter earnings after the bell yesterday. And unfortunately for JWN stock investors, Nordstrom earnings were 6% lower than for the same quarter last year.
Nordstrom earnings did manage to beat analysts’ slightly muted expectations for the quarter, with earnings of 69 cents per share of Nordstrom stock instead of the expected 66 cents. JWN missed slightly on the top line, however, as revenue came in at $2.8 billion for the quarter, while JWN stock analysts had expected $2.9 billion.
That’s bad news for JWN investors, as Nordstrom stock was already lagging the market and sank slightly lower in after-hours thanks to the report.
Behind the Nordstrom earnings numbers are some trends that, if they continue, could signal headwinds for the upscale retailer and JWN stock. Same-store sales are the proverbial tea leaves that the retail industry uses to gauge its performance. And same-store sales at JWN — particularly at its higher-profit Full-Line stores — are slipping.
The Nordstrom earnings report showed that overall same-store growth in the third quarter came in at an anemic 0.1% vs. the 10.7% same-store sales growth JWN reported in the same quarter last year. Nordstrom said same-store sales were softer because the company’s annual Anniversary Sale, which occurred in the third quarter of 2012, fell into the second quarter this year.
But here’s where it gets interesting: Same-store sales growth is only 2.5% year-to-date for JWN, compared to 7.7% for the same period last year — and that nullifies the Anniversary Sale timing issue pointed in the Nordstrom earnings call.
It’s not as if the company’s target audience of upscale shoppers has fallen on unusually hard times. After all, sector rival Macy’s (M) rocked its quarterly earnings on Wednesday — profit rose 22% and same-store sales increased 3.5%. While lower and middle income shoppers grew more cautious during the partial government shutdown — a factor that affected comp sales for retailers like Walmart (WMT) — higher income shoppers largely shrugged off economic worries.
Of course, it wasn’t all bad news for Nordstrom earnings and JWN stock investors by any means. The JWN multi-channel strategy clearly is working, as the retailer’s Direct sales rose 23% in the third quarter, driven by a larger selection of merchandise and improvements in its e-commerce technology. HauteLook, the designer sample-sale site JWN bought from entrepreneur Adam Bernhard in 2011, also is running strong — net sales rose 22% in the quarter.
Nordstrom earnings also showed strong growth at discounted Nordstrom Rack stores; net sales rose 16% and same-store sales grew 3.7%. Rack has been a growing focus for Nordstrom, with 20 new stores opened in the past year. Nordstrom also is expanding into Canada, and JWN expects the Canada business to add as much as $1 billion a year to its revenue.
Make no mistake: This is not gloom and doom time for JWN stock investors — far from it. Nordstrom remains a well-managed company that has strong liquidity and pays a dividend that yields nearly 2%.
Still, Nordstrom earnings raise a caution about whether the retailer’s discount and direct lines are cannibalizing more profitable sales at its Full-Line stores — and that should worry those betting on JWN stock.
Also, HauteLook’s visionary Bernhard is walking away from the CEO role, although he will continue to advise President Terry Boyle.
With so much uncertainty ahead, I’ll like Nordstrom stock a lot better if holiday spending fuels stronger comp sales in the fourth quarter.
As of this writing, Susan J. Aluise did not hold a position in any of the aforementioned securities.
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