In retrospect, after this week’s disappointing quarterly reports from rivals Macy’s, Inc. (M) and Kohl’s Corporation (NYSE:KSS), it would have been surprising if Nordstrom, Inc. (NYSE:JWN) didn’t fall short of expectations.
Even for retailers doing everything right it’s a tough consumer environment.
Yet, with Nordstrom stock plunging 13% in after-hours trading following Thursday’s post-close release of the company’s Q1 results, clearly the retailer threw investors more of a curve ball than they were counting on. And that’s saying something in the shadow of the 23% pullback JWN shares had already suffered between March’s peak and Thursday’s close of $45.23, before the 13% after-hours setback.
The numbers and market’s response leaves Nordstrom owners asking the same thins investors of most retail stocks also find themselves asking as of this week: What happened? And, now what?
Nordstrom Q1 Earnings Point to a Retail Headwind
Last quarter, department store chain Nordstrom earned 26 cents per share on revenue of $3.25 billion.
Sales were up 2.5% overall, though on a same-store sales basis they fell 1.7%. Perhaps more alarmingly, revenue missed expectations of $3.28 billion by just a hair, while earnings fell woefully short of the 46 cents per share of JWN analysts had been expecting.
As the broad numbers suggest, Nordstrom was able to drive consumers into its stores, and induce at least a relatively respectable level of spending from those shoppers. It was forced to take heavy discounts on its merchandise, though.
Nordstrom also spent heavily on its e-commerce efforts last quarter, though it still lags on that front.
Nordstrom co-president Blake Nordstrom said of the results:
“Our first quarter results were impacted by lower than expected sales. In response we have made further adjustments to our inventory and expense plans. … As the pace of change in retail continues to accelerate, we remain committed to serving customers by taking steps that will continue to meet their expectations while driving profitable growth.”
Looking ahead, the company now anticipates full-year income of somewhere between $2.50 and $2.70 per share. Analysts had been modeling an average of $3.20, and the company had previously guided for earnings of between $3.10 and $3.15 per share.
The lowered earnings outlook was paired with a lowered sales outlook. Nordstrom had previously called for a same-store sales-growth range of between 0% and 2% this year. Now that range calls for same-store sales between 1% less and only 1% more than 2015’s sales.
Still, total revenue is on pace to grow between 2.5% and 4.5% in 2016, versus prior revenue growth guidance of 3.5% to 5.5%.
One encouraging piece of data… the company’s lower-priced brand Nordstrom Rack and HauteLook saw nearly a 12% improvement in sales, and same-store sales growth of 4.6%.
That, however, is simply not enough to satisfy shareholders who are see the retailer is struggling to gain ground in a fierce, multi-front market.
Bottom Line for Nordstrom Stock
As for the future, USA Today columnist Matt Krantz may have offered the most pragmatic, level-headed view for bargain hunters looking at JWN in an undervalued light now that it’s fallen 37% in less than two months:
“Even with the stock’s fall, investors shouldn’t be tempted to think there’s a value situation. The company warned the current fiscal year will be tough, as it says sales at stores open at least a year could decline up to 1%. Analysts now expect adjusted profit in the current fiscal year to drop 4.5% and rate the stock a “hold.” In short, Nordstrom can recover – but the recovery isn’t going to be overnight.”
It’s hard to disagree.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
