New York's competitive landscape got only more crowded once upscale department-store chain Nordstrom Inc JWN opened its very first Manhattan flagship. But its shares were sliding days before its third earnings report due to investors' fear of bad news, mostly due to poor performance of its industry pears which revealed that some heavy headwinds are infecting the entire sector.
Yet, some analysts were more optimistic about Nordstorm as opposed to other department stores due to its advanced digital strategy- and they were right! The Seattle-based company reported its third quarter earnings on Thursday after the bell and managed to exceed both earnings and revenue Wall Street estimates! As a result, its shares rose 10% in after-hours trading.
Fiscal Third Quarter
The company earned $126 million or 81 cents per share whereas analysts on average expected 65 cents per share. Revenue of $3.67 billion also exceeded forecasts. Moreover, the company also slightly uplifted the bottom of its full year outlook range that was $3.25 to $3.50. and now is $3.30 to $3.50. Management managed to save $170 million in expenses year-to-date which means it will most likely exceed its plan for the year which is in the range of $150 to $200 million.
Its New York flagship inspired a strong customer response with a sales uplift in the Men's section that even exceeded expectations. Overall, the company justified its investment as its third quarter net earnings rose from $67 million from last year's comparable quarter to the impressive $126 million. Even if we take aside the last year's earnings accounted for a non-recurring and debt related tax charge of $49 million, net earnings grew 9%.
Competition
The sector of department stores as a whole is one of, if not the, worst performing sector in retail. While retail as a whole is growing, department store sales are dropping and this losing streak is present for several years now. With weak results from its competitors, store closures and a bankruptcy filing from the legendary Barneys New York, there are many painful reminders of the challenges that are upon the industry. Nordstrom is most certainly not immune to this macroenvironment.
The company's NY expensive dream actually opened after rival Neiman Marcus Group gained a New Yorker address and existing New Yorkers such as Saks, Bloomingdale's and Macy's M, whose shares literally got slashed as its full year-outlook, have all done major makeovers of their shops. Putting it bluntly, retailers are fighting for market share.
The good news is that the company doesn't exactly have a direct competitor considering it is a high-end department store with off-price brands. On the other hand, its stock does move with the sector. On an entirely different end, there's the prospective and successful Target Corporation's TGT and its strong recent results left everyone wondering if the competitor is managing to take customers away from Nordstrom. But, no reason to fear as the company also invested in enhancing its loyalty program that increased 13% over last year, and resulted in more than 12 million active customers accounting for 65 percent of sales in the most recent quarter.
Nordstrom's efforts to appeal to the younger generations by making its store more ‘comfortable' for them are also more than evident. They went as far as including graffiti in their scenery and pairing Nike Inc NKE snickers with high-end designer creations.
Outlook
As the retail sector transforms as a whole, the winning equation seems to be made of ‘making an experience" for buyers. And Nordstrom is definitely looking for new ways to serve its customers and differentiate itself from competitors.
Better-than-expected third quarter results have demonstrated a substantial progress in this transformation, with efficient cost and inventory control that contributed to the company's profitability. Although good but not great, Nordstrom seems to be well-equipped to ship through the department store sector storm!
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