Despite Q2 Profit Rise, Nordstrom Lowers Full Year Forecast

Nordstrom shopping bagSeattle—Shares of Nordstrom fell in early trading today after the retailer reported Thursday afternoon that it lowered its full year forecast despite a rise in second quarter profit.

For the quarter ended August 3, Nordstrom posted an 18% increase in its net profit to $184 million, or 93 cents a share, compared to a profit of $156 million, or 75 cents a share, a year ago.

While that was better than analysts’ average estimate for earnings of 88 cents, the company missed on their sales forecast. Net revenue rose 6.3% to $3.19 billion; analysts’ consensus expected $3.29 billion.

Total comparable store sales, which include Nordstrom, Nordstrom Rack and online direct sales, rose 4.4%. However, comp sales at Nordstrom declined 0.7% compared with last year’s increase of 1.1%. The Southeast and Southwest regions were the top-performing regions.

Sales at Nordstrom rack grew 12% to $69 million while comparable store sales rose 2.4% compared with 7.7% in 2012.

Direct sales were up 37% on top of last year’s increase of 40%, “fueled by expanded merchandise selection and ongoing technology investments to enhance the online experience.”

Gross margins narrowed to 35.5% from 35.6% last year, due largely to higher costs attributed to promotion and discounts. Selling, general and administrative expenses, as a percentage of sales, narrowed down to 26% from 26.6% a year ago.

Sales ‘Softer than Anticipated’

Nordstrom in a statement said “sales trends throughout the second quarter showed moderate improvement relative to the first two months of the year but remained softer than anticipated.”

The company said its Anniversary Sale added 250 basis points to comp sales and 6 cents a share to earnings.

Looking ahead, Nordstrom Inc. said it expects “moderate growth” in its Nordstrom stores, while it accelerates its expansion of Nordstrom Rack stores and “aggressive growth” in e-commerce.

Nonetheless, Nordstrom reduced its fiscal full year forecast to $3.60 to $3.70 a share, down from $3.65 to $3.80. Comparable store sales are expected to be between 2% and 3% from 3% and 5%. Analysts’ consensus expects full year earnings of $3.78 a share.

“We’re in a business that tends to travel in cycles. We’ve had a very strong last three years coming off the recession,” CFO Michael Koppel told analysts on a conference call. “We feel very good about the future and we think this is just one of those shorter-term blips within a long cycle.”

Commenting on Nordstrom’s report, Edward Yruma, analyst at KeyBanc Capital Markets said in a client note that Nordstrom’s lowered outlook “reflects a disappointing first quarter and tepid second-quarter recovery — clearly management was hoping for a stronger rebound.”

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Jeff Prine

Jeff Prine, Editor at Large, Accessories Magazine
Jeff returns as a regular contributor to Accessories magazine. Initially Jeff worked as senior editor at Accessories more than 20 years ago and his love of the industry has followed him until present. Since his tenure here, Jeff has continued to report jewelry, watch and other luxury goods trends as executive editor at Modern Jeweler magazine, fashion director at Lustre, and as contributor on products and trends for consumer and trade publications and websites. In addition to his editorial experience, Jeff also served as an adjunct instructor for accessories merchandising at Fashion Institute of Technology.