While Nordstrom Inc. had expected softer sales trends from the fourth quarter to continue into the first quarter, first-quarter results showed the deceleration was greater than anticipated. The retailer has already identified where it needs to make changes and has taken immediate action. Now it expects improved results for the second half.
In a Nutshell: Erik Nordstrom, co-president, said during a conference call to Wall Street analysts that the retailer disappointed its customers, and acknowledged, “We own it.” But he also noted that the company knows where it missed on the execution of certain strategies, and that it is already “taking steps to course correct and drive the top line.”
Loyalty, digital marketing and merchandise were areas where execution misses had impacted top-line events, Nordstrom said.
The retailer’s loyalty program has “nearly 12 million active customers that contributed more than 60 percent in the first quarter,” Nordstrom said, adding, however, that one of the misses in the quarter connected with the rollout of Nordy Club, its enhanced loyalty program, which eliminated paper notes. Nordstrom said the company didn’t realize that a segment of its customers still rely on paper mailings, which in turn contributed to lower sales at both full-price and off-price stores.
Nordstrom also said the company reduced its digital marketing to shift resources to its loyalty initiatives. Going forward, the company will increase its digital marketing spend to drive traffic and sales, the co-president said. As for merchandise, the company is rebalancing its assortment mix at both full-price and off-price businesses. Women’s apparel as a category has had the toughest results in the full-price business, Nordstrom said, adding that beauty was also a “call out” due to promotions and out-of-stock levels.
Net Sales: Total revenues for the quarter ended May 4 fell 3.3 percent to $3.44 billion, from $3.56 billion. Excluding credit card revenues, net sales fell 3.5 percent to $3.35 billion from $3.46 billion. The company said full-price sales fell 5.1 percent to $2.12 billion, while off-price sales dipped 0.6 percent to $1.22 billion. Digital sales rose 7 percent and represented 31 percent of the business in the quarter.
Full-price sales include those at Nordstrom U.S. full-line stores, Nordstrom.com, Canada, Trunk Club, Jeffrey and Nordstrom Local. Its off-price segment includes Nordstrom U.S. Rack stores, Nordstromrack.com/HauteLook and Last Chance clearance stores.
The company said it continues to make its business more efficient and productive, and is tracking ahead of its plans in executing efficiency initiatives to achieve savings of $150 to $200 million this year.
The company is still on track to open its New York City flagship on Oct. 24, as well as two Nordstrom Local neighborhood hubs this fall. New York City is also the retailer’s largest market for online sales.
Earnings: The company said net earnings fell 57.5 percent to $37 million, or 23 cents a diluted share, from $87 million, or 51 cents, a year ago.
Wall Street was expecting 43 cents a diluted share on revenues of $3.57 billion.
For the fiscal year, Nordstrom updated guidance and now forecasts net sales to decline by 0 percent to 2 percent, versus prior expectations of an increase of 1 percent to 2 percent. Diluted earnings per share was revised lower to between $3.25 to $3.65 from the prior estimate of between $3.65 to $3.90.
CEO’s Take: Co-president Nordstrom said of the misses in the quarter, “This is well within our control to turn around.” He also emphasized that the “strength of our inventory and expense execution helped mitigate a meaningful portion of our sales miss. We ended the quarter with inventories in solid shape, and our financial position remains strong. We’re actively taking steps top-line, and we’re focused on delivering on our financial goals.”