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The retail industry has taken it on the chin recently, with many big-box department stores announcing financial results that looked good but left investors wanting more. For Nordstrom (NYSE:JWN), a long effort to go private didn’t lead anywhere, so the upscale retailer now has to figure out how to satisfy shareholders who’ve been nervous about its ability to translate its renowned customer service into something digital customers can appreciate.
Coming into Thursday’s third-quarter financial report, Nordstrom investors had hoped to see solid growth in sales and earnings. The results that Nordstrom posted were generally favorable, and the company even boosted its guidance for the remainder of the fiscal year. Yet that still wasn’t enough to let the stock avoid the malaise that has hit its industry peers in recent days.
Image source: Nordstrom.
What Nordstrom said about its performance
Nordstrom’s third-quarter results didn’t have a whole lot of surprises. Total revenue was higher by 3.3%, to $3.75 billion, which was stronger than the 2% growth rate that most of those following the stock were expecting to see. Net earnings of $67 million were down more than 40% from year-ago levels, but after accounting for a non-recurring credit-related charge, adjusted earnings of $0.67 per share topped the consensus forecast among investors by $0.01.
Nordstrom’s fundamental performance was in line with what we’ve seen from the retailer in recent quarters. Comparable sales were higher by 2.3%, slowing from its growth rate in the second quarter but coming in right around the average for the fiscal year to date. Nordstrom also was quick to point out that changes in revenue-recognition standards adversely affected the third quarter in favor of the second quarter; taking the past six months as a unit, combined net sales were higher by more than 5% year over year.
Nordstrom explained how it’s made progress with key elements of its strategic vision. Digital sales are up 20% for the first nine months of 2018, and Nordstrom is getting three-tenths of its business from digital sources, meeting customers where they want to shop. The retailer’s efforts to tap new markets continued to gain momentum, with three new Nordstrom Rack stores in Canada adding to its past expansion north of the 49th parallel.
From a segment perspective, Nordstrom saw its best results from its off-price business, where comparable sales were higher by 5.8%. That compared to just 0.4% comps growth for the full-price segment.
What’s next for Nordstrom?
Nordstrom’s overall view of how to treat customers well centers on compelling product lines, outstanding services and experiences, and leveraging the strength of the Nordstrom brand. The launch of the Nordy Club in October represented an extension to Nordstrom’s existing customer-loyalty program, encouraging customers to sign up to be Nordstrom credit card holders in order to earn rewards faster. Nordstrom gets the majority of its revenue from the 11 million active customers in its loyalty program.
In addition, Nordstrom opened two new Nordstrom Local neighborhood locations in the greater Los Angeles area. By using a different store concept that’s better tied to specific local markets, Nordstrom hopes that these locations will heighten the perception of the brand. Local stores will offer services like personal stylists, in-store pickup of online purchases, alterations and tailoring, Trunk Club products, and in-store refreshments. As a complement to its digital offerings, Nordstrom Local hopes to keep customers engaged in multiple ways.
Nordstrom increased its outlook for fiscal 2018. The retailer now sees revenue of $15.5 billion to $15.6 billion, up another $100 million from its previous range. Adjusted earnings per share are now expected at the upper end of its previous projection, with current guidance for $3.55 to $3.65 per share.
Yet Nordstrom investors still didn’t seem satisfied with the retailer’s results, and the stock dropped 10% in after-hours trading following the announcement. Shareholders are getting nervous about the stock market’s prospects overall, so it looks as though Nordstrom will have to prove that its strategy will work well during the critical holiday season before investors will have full confidence in the retailer’s strategic vision.
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