Nordstrom Inc. dropped its dual-president structure Tuesday, making Erik Nordstrom the sole CEO while Pete Nordstrom gains the title of president and chief brand officer of the department store company. The C-suite changes came as the upscale retailer reported both fourth-quarter and full-year revenue and earnings below Wall Street estimates.
“These titles help clarify our respective roles, as we strive to maximize our impact both as individual leaders and as a team,” the CEO said. “Pete and I continue to be partners in ensuring Nordstrom’s success, and we are both focused on executing our long-term plan.”
The company said the new titles reflect the executives’ current and ongoing responsibilities, and both will remain on the board of directors.
In a Nutshell: Nordstrom believes its local market strategy will shape its future experience, and it’s bullish on bringing this shopping approach to five new locales in the months ahead. In addition to the existing local markets of New York City, Los Angeles, Chicago, Dallas and San Francisco—where it says the small-footprint stores drove 80 basis-points sales improvements on average—Nordstrom said it will expand its service-driven stores to Boston, Philadelphia, Seattle, Washington D.C. and Toronto.
Local stores, the retailer said, drove “outsized” customer engagement versus other markets in Q4, and these 10 cities together account for more than half of Nordstrom’s sales.
The company is also readying an e-commerce website specific to the Canadian market “to enable a seamless shopping experience across stores and online,” it said. Plus, Nordstrom shared plans to strengthen its “supply chain network” with the goal of more quickly shipping orders to shoppers on the West Coast, a region that encompasses 40 percent of its customer base.
And its Trunk Club personal styling service will be more fully integrated into the company’s full-line stores and digital flagship in an effort to “gain efficiencies,” the retailer said.
The department store retailer’s plan relies on “digital capabilities and scaling our market strategy to drive sales and earnings growth,” the CEO said.
“The momentum from our investments and market strategy is enabling us to get closer to customers, transforming the way we’re serving them,” he added.
In addition to the executive updates, Nordstrom announced changes to its board of directors. The company has retained an executive search firm to identify replacements for Kevin Turner and Gordon Smith, who have declined to seek re-election at the annual shareholders meeting on May 20. The board size will shrink from 11 to 10 members over the next two years, the company said, and independent directors will face a maximum term limit of 10 years.
Sales: Fourth-quarter net revenue for Nordstrom was up 1.3 percent over the prior year for a total of $4.53 billion, below Wall Street’s $4.56 billion estimate. The company said Q4 sales year-to-date sales trends improved by more than 400 basis points.
Full-price sales ticked up 1 percent while off-price saw a 1.8 percent sales improvement. Digital sales, up 9 percent, represented 35 percent of all revenue in the quarter. The company derived more than half of all digital sales growth from customers picking up orders placed online.
Full-year 2019 sales were down 2.2 percent, which Nordstrom said was in line with its expectations. Annual revenue missed analyst estimates of $15.55 billion at $15.52 billion. Full-price sales were down 3.5 percent on the year, off-price sales rose by 0.2 percent and digital sales grew by 7 percent to account for 33 percent of total revenue—which the company said was a result of an increased focus on loyalty programs, digital marketing and merchandising initiatives.
Nordstrom has set its targets for fiscal year 2020 at 1.5 percent to 2.5 percent sales growth and a mid-single-digit increase in credit card revenue.
Earnings: On a diluted basis, Nordstrom earned $1.23 in fourth-quarter EPS, below the $1.47 Wall Street estimate. This included unforeseen charges of 19 cents related to the integration of Trunk Club with Nordstrom’s main business along with additional debt refinancing costs.
For fiscal year 2019, Nordstrom recorded full-year earnings of $3.18, below Wall Street’s estimate of $3.42. The result, excluding the 19-cent charge, falls within the range of $3.30 to $3.50 Nordstrom set at the beginning of the year.
Nordstrom’s outlook for fiscal year 2020 anticipates diluted EPS between $3.25 and $3.50.
CEO’s Take: Erik Nordstrom, CEO, said: “Through our customer focus, inventory efficiencies and expense discipline, we drove improvement in sales trends in full-price and off-price, and we increased profitability during the second half of the year. Our 2019 results reflected the accelerated rollout of our market strategy, our strength of Nordstrom Rack’s execution, improved merchandise margins and realized expense savings that were 10 percent above our plan.”