Proving that the high-end is not immune to the nation’s current financial woes, luxury retailer Nordstrom, Inc. (JWN) said on Thursday that its third quarter profit fell 57 percent while same-store sales declined 11.1 percent compared to a year ago.
Fourth quarter results don’t figure to get better either as the company cut its full-year profit estimate to a range of $1.87 to $1.97 per share which implies a reduced outlook for the current quarter. In August, Nordstrom had forecast earnings for the current year to be between $2.55 and $2.65 per share.
The Commerce Department reported that retail sales fell by 2.8 percent in October, the biggest drop on record, eclipsing even the November 2001 downturn that occurred in the wake of the 9/11 attacks. The decline was led by near catastrophic drop in auto sales.
A survey of the nation’s big retail chains found that business in October was the worst in 39 years, even as the chains slashed prices in a bid to get shoppers to buy more. Consumers weren’t biting.
Even upscale shoppers are pulling back as they continue to read about the housing crisis, job cuts, market turbulence and the impact of the new administration on taxes.
Nordstrom said its bread-and-butter full-line stores saw a 15.6 percent same-store sales decrease while its discounted Nordstrom Rack stores logged a 3.6 percent increase in same-store sales and the direct segment grew 8.5 percent in the period.
These numbers suggest even upscale shoppers are looking for bargains or delaying purchases as the holiday season approaches.
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Indeed, one big headwind Nordstrom faces is that its core customer is pulling back—shopping less and making more deliberate purchases.
Value is becoming more and more important and the company still honors competitors’ prices if they are lower. During the all-important holiday season this could mean more discounting than normal which will further eat away at margins. Gross profit, as a percentage of sales fell 332 basis points in the third quarter.
Nordstrom suspended its share buyback program in September after purchasing 0.8 million shares in Q3 at an average price of $30.82. The company said it may resume the program in the future when economic conditions improve.
If Nordstrom is unwilling to buy their shares at the currently depressed levels why should anybody else? This tells me that management has no confidence as it looks out into 2009. Chances are Nordstrom will need to further cut its earnings guidance as we head into the teeth of this recession.
Louis Navellier’s PortfolioGrader Pro rates JWN a "C" or "hold." To find out how the stocks in your portfolio rate, sign up today for FREE access.
This article was written by Jamie Dlugosch, contributor to InvestorPlace.com. For more actionable insight like this, go to: www.InvestorPlace.com.
