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Aug 21, 2019

Nordstrom soars after beating on profit and avoiding peers' woes

Nordstrom soars on surprise profit beat

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Nordstrom Inc. (JWN:UN) reported profit that beat analysts’ estimates, avoiding the challenges that department store peers are grappling with -- at least for now. The stock jumped on the news.

Second-quarter earnings per share were 90 cents, exceeding the average estimate from analysts. Revenue fell 5.1 per cent from a year earlier to US$3.78 billion, compared with projections for US$3.85 billion.

Key Insights

  • Nordstrom’s results may offer the industry some hope that the department-store business model can still be viable. Erik Nordstrom, the company’s co-president and chief executive officer, said Nordstrom is “focused on driving our top-line, and while this can take time, we are confident in our ability to manage through cycles.”
  • Still, there are challenges ahead. The company, which had earlier said net sales could be flat this year, is now saying they’ll be down two per cent. It also narrowed its earnings range to US$3.25 to US$3.50 from US$3.25 to US$3.65 previously.
  • Seattle-based Nordstrom is making a big bet on New York: It will open a flagship store there in October -- a seven-story, 320,000-square-foot behemoth that targets women. It will also open two small format local stores in the city in September. In Los Angeles, where it’s already operating local stores, it has had success increasing customer engagement through services and in-store pick-up, it said.
  • The report may sharpen investors’ focus on whether the founding family still wants to take the company private. The Wall Street Journal reported last month that family members are in talks to increase their stake. The company said it wouldn’t comment on market speculation in its conference call.
  • Nordstrom said it ended the quarter with a favorable inventory position -- an area that has challenged some peers -- with sales “around the low end” of the expected range. “The positive was good inventory control, and that was encouraging,” said Poonam Goyal, an analyst with Bloomberg Intelligence. She said the overall report sent a mixed message because of the less optimistic guidance.

Market Reaction

  • The shares rose as much as 13 per cent in late trading Wednesday. The stock has fallen 43 per cent this year through Wednesday’s close, compared with a 17 per cent gain for the S&P 500.