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Nordstrom Adjusts Inventory as Q1 Earnings Disappoint

Nordstrom Inc. released first-quarter earnings on Thursday that were largely in line with the rest of the retail industry.

The department store operator said profits were $46 million, or $0.26 per diluted share, in the three months ended April 30. By comparison, net earnings were $128 million, and $0.66 per diluted share, in the same period a year ago.

Nordstrom admitted this result was below expectations and attributed the drop primarily to soft sales and greater markdowns, as well as higher credit chargeback expenses associated with an industry change in liability rules that came into play last October. Severance charges related to recent corporate layoffs didn’t help matters either.

“In response we have made further adjustments to our inventory and expense plans,” Blake Nordstrom, co-president, stated. “As the pace of change in retail continues to accelerate, we remain committed to serving customers by taking steps that will continue to meet their expectations while driving profitable growth.”

The company saw an increase in Q1 net sales of 2.5% to $3.2 billion, versus last year’s $3.1 billion, but comparable store sales decreased 1.7%. Full-price net sales (consisting of U.S. full-line stores and as well as its Canadian business and Trunk Club) also fell 2.2%, while comps declined 4.3%.

Beauty was the best merchandise category across the board, while women’s apparel departments targeting young customers experienced comparable sales increases. The company said the Midwest was its top-performing full-price region.

But while full-price stores stuttered, Nordstrom’s off-price businesses (Nordstrom Rack stores and e-commerce, and HauteLook) flourished, with net sales up 11.8% in the first quarter and a 4.6% increase in comps. Geographically, the East was the top performer.

While sales trends were below expectations, Nordstrom said it ended the three-month period with inventory growth of 5.4% and net sales growth of 2.5%, resulting in a negative spread of 3 percent, which was an improvement from the negative spread of 7 percent in the fourth quarter of 2015.

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In terms of fiscal year guidance, the company cut its outlook, reflecting its anticipation for slow sales and a continued promotional environment. Nordstrom said it’s expecting net sales to increase 2.5-4.5%, comps to be the range of a 1 percent decrease and 1 percent increase, and diluted earnings per share to be between $2.50 and $2.70.

At time of writing, shares had fallen by more than 16 percent in after-hours trading following the release of the results.

As of April 30, Nordstrom operated 329 stores with a total of 28.77 million square feet of selling space in the U.S. and Canada.