Nordstrom profits hit after credit card interest mistake

Nordstrom Inc. stated that non-recurring charges of 28 cents per share were required in the third quarter, after discovering that some cardholders with overdue accounts were paying too much interest.

The department store retailer estimates that less than 4% of Nordstrom

JWN, -13.66%

cardholders will receive a refund or credit, many of them having less than $ 100 due, according to comments from co-chair Blake Nordstrom.

Nordstrom's profit slipped to 39 cents a share, up from 67 cents last year. Adjusted EPS of 67 cents exceeded expectations by 66 cents, according to FactSet.

The stock closed down 13.7% Friday.

"Excluding this estimated expense, which was not built into the company's previous outlook, the earnings slightly exceeded the company's expectations, reflecting continued strength in sales at both full price and non-price activities. ", the statement said.

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Analysts say this is not the only problem Nordstrom is facing.

"After several quarters of fears that inventory levels in the department store network are not as healthy as they seemed in the midst of a growing diversion of surplus products to non-price channels, the 3Q reports make the stock situation more difficult to ignore, "Instinet writes. analysts led by Simeon Siegel.

Nordstrom said its same-store sales growth of 0.4% was affected by its anniversary sales performance. Chief Financial Officer Anne Bramman said that there was a "high volume of online sales for birthdays," according to a FactSet transcript of the results call. This could be a reason for higher yields, says Instinet.

Bramman also said: [impacted] comparisons from one year to the next. "

"In both cases, higher return products could help explain inflated inventory levels, which could weigh on product margins," says the Instinet memo.

Instinet notes Nordstrom shares as neutral with a price target of $ 55, down $ 2.

GlobalData Retail is concerned about the 0.4% growth in same-store sales, indicating that the company's strong e-commerce business is driving stores away, which could impede impulse buying.

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"In a sense, Nordstrom is falling victim to its own success and must explore ways to encourage more visits to the stores," said Neil Saunders, Managing Director of GlobalData.

He thinks physical locations need to rely less on fashion to attract traffic.

"In our opinion, the stores need to offer a wider choice of home and lifestyle products so Nordstrom can attract visitors and absorb a larger proportion of their expenses," says the note.

Jane Hali, executive director of investment research firm Jane Hali & Associates, shared her comments with MarketWatch about the non-price rack activity.

Rack posted a 5.8% increase in same-store sales for the quarter. Nordstrom's 33.3% margins were penalized by the Rack business, which has been a long-time benefit to the company and is now its main business. For example, there are 116 Nordstrom full line stores in the United States and 238 Nordstrom Rack stores.

"Nordstrom is after all a big store with all the problems associated with it," said Hali. "The rack is not a TJX, where they are still liquid and bring to the ground buy now, wear now [items]. "

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Even optimistic analysts about Nordstrom are worried about same-store sales.

"Nordstrom delivers an unparalleled digital and physical customer experience, which only intensifies, with advanced execution solutions, data integration and store resources and talent." "wrote Cowen's analysts. They also believe that Nordstrom's localized strategy is good.

"Nevertheless, we remain on the sidelines because a short-term valuation could be fair and we expect greater visibility on the margin produced and the consistency of sales of comparable stores."

Cowen believes the Nordstrom stock market has a price target of $ 56.

Nordstrom shares have grown 7.5% since the beginning of the year, while the S & P 500 index

SPX, + 0.22%

is up 2.3% for the period.