Nordstrom Shows More Concern on Higher-End Retail Spending

It turns out that even the U.S. economy is just not as strong as many of us have been hoping for. At least that is what we are seeing with retail earnings so far. Various aspects of consumer spending have been mixed, and now it is Nordstrom Inc. (NYSE: JWN) that is getting its day of pain after earnings and guidance. The higher-end apparel and accessories department store retailer has seen its shares pounded after disappointing earnings. The overall trends here just aren’t what investors would have been hoping for, and that is even after expectations were not really that high going into the report.

Nordstrom’s third-quarter earnings per share (EPS) were $0.42, after a reduction of $0.15 per share associated with the closing of its credit card portfolio sale. The company said right up front that its third-quarter performance was below internal expectations. The driving force behind the disappointing trends was softer sales trends that were generally consistent across channels and merchandise categories.

While total sales rose 6.6% for the quarter, the total comparable sales rose by only 0.9% from a year ago. For a comparison on the year-to-date sales, Nordstrom’s total sales are up 8.5% and comparable sales are up 3.5%. The long and short of the matter is that current trends are looking much worse than what was seen before the recent soft patch.

Nordstrom’s key name stores saw comparable sales increase only by 0.3% in the quarter, and that includes on top of its full-line stores. net sales increased by 11% due to continued expansion of merchandise selection. Net sales in the off-price business increased by 12% over the same period last year.

Another issue, a no-no for retail, is that inventories are rising along with general expenses. Ending inventory increase of 8.0% was in line with the increase in net sales of 6.6%. Selling, general and administrative expenses of $1.0 billion were 30.8% of net sales, a gain of 68 basis points from a year ago.

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Guidance is not better either. The prior net sales increase guidance of 8.5% to 9.5% has now been guided down to 7.5% to 8.0% for the fiscal year. Also, Nordstrom’s comparable sales increase guidance is being moved from a prior range of 3.5% to 4.5% down to a new range of 2.5% to 3.0%. The fiscal 2015 EPS target is also being ratcheted down considerably, from a range of $3.85 to $3.95 down to $3.30 to $3.40.

Nordstrom’s after-hours reaction has been quite poor, and harsh enough for a 52-week low. The stock closed up 1.85% at $63.47, with a 52-week range of $61.06 to $83.16, and the after-hours reaction was down a sharp 20% at $50.67.