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Nordstrom's Weaker Profit Clouds Comeback Plan

Though sales grew faster than expected last quarter, the results spotlighted the challenges in Nordstrom’s turnaround plan.
Nordstrom store | Source: Shutterstock
By
  • Bloomberg

SEATTLE,  United StatesNordstrom Inc. declined as much as 4.9 percent in late trading after shrinking profit last quarter renewed concerns about the department-store chain and its plans for a buyout.

The retailer posted earnings of 89 cents a share in the period, which ended Feb. 3. Even taking into account a 25-cent tax expense and a one-time investment in employees, that fell short of the $1.25 predicted by analysts.

Though sales grew faster than expected last quarter, the results spotlighted the challenges in Nordstrom’s comeback bid. Profit margins narrowed — partly because of higher real estate costs — and its overhead expenses grew. The company has been spending money on its supply chain, marketing and technology in a bid to buck an industrywide slump.

Meanwhile, the Nordstrom family has been attempting to take the chain private, which would give management greater flexibility to try new strategies. The idea is to sidestep investor pessimism about department stores by completing its turnaround plan outside the glare of public markets.

The company put the buyout plan on hold last year after lenders proposed interest rates that were higher than what the family wanted to pay. But this year, the Nordstrom clan is expected to make another attempt to seal a deal.

Against that backdrop, the latest earnings weren’t well received. The shares dropped as low as $48 in extended trading. The stock had been up 6.5 percent this year through Thursday’s close.

Tighter Margin

The Seattle-based company reported a gross margin of 35.6 percent last quarter, just shy of the 36 percent estimate. Nordstrom expects earnings in the coming year of $3.30 to 3.55 a share, excluding some items. Analysts had estimated $3.32.

The retailer sees same-store sales gaining 0.5 percent to 1.5 percent this year — a slowdown from the holiday period. They grew 2.6 percent during the fourth quarter, beating the 0.9 percent estimate.

Nordstrom’s discount Rack chain has been a weak spot, though its sales didn’t decline as much as expected last quarter. Comparable sales dipped 0.9 percent at the division’s stores.

By Lindsey Rupp; editors: Nick Turner and Lisa Wolfson.

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