Nordstrom shares slumped 13% in Friday trading after the retailer took a 28-cents-per-share charge in the third quarter
Nordstrom Inc. said it took a nonrecurring 28-cents-per-share charge in the third quarter after it discovered that some cardholders with delinquent accounts paid too much interest.
The department-store retailer estimates that fewer than 4% of Nordstrom JWN, -13.66% cardholders will get a refund or credit, with many owed less than $100, according to comments from Co-President Blake Nordstrom.
Nordstrom’s profit slipped to 39 cents per share from 67 cents per share last year. Adjusted EPS of 67 cents beat the 66-cents expectations, according to FactSet.
The stock closed down 13.7% on Friday.
“Excluding this estimated charge, which was not incorporated in the company’s prior outlook, earnings slightly exceeded the company’s expectations, reflecting continued top-line strength across its full-price and off-price business,” the earnings release said.
Analysts say that’s not the only problem Nordstrom faced.
“After several quarters of expressing our fear that inventory levels across the department store channel were not as healthy as they seemed amid a growing diversion of excess product to off-price channels, 3Q reports are making the inventory situation harder to ignore,” wrote Instinet analysts led by Simeon Siegel.
Nordstrom said its full-price same-store sales result of 0.4% growth was impacted by returns tied to its anniversary sales. Chief Financial Officer Anne Bramman said there was a “high volume of online anniversary sales,” according to a FactSet transcript of the earnings call. That could be a reason for the higher returns, Instinet says.
Bramman also said “timing considerations [impacted] year-over-year comparisons.”
“Either way, higher returned product may help explain inflated inventory levels, which could weigh on product margins,” the Instinet note said.
Instinet rates Nordstrom shares neutral with a $55 price target, down $2.
GlobalData Retail is concerned about that 0.4% same-store sales growth as an indication that the company’s robust e-commerce business is taking away from stores, which could stymie impulse buys.
“In a sense, Nordstrom is a victim of its own success and needs to explore ways of driving more visits to stores,” Neil Saunders, GlobalData’s managing director, wrote.
He thinks the brick-and-mortar locations need to rely less on fashion to attract traffic.
“In our view, stores need to showcase a much greater selection of homewares and lifestyle products so that Nordstrom can both pull in visitors and grab a greater proportion of their spending,” the note said.
Jane Hali, chief executive of investment research firm Jane Hali & Associates, called out the off-price Rack business in comments to MarketWatch.
Rack had a 5.8% same-store sales gain for the quarter. Nordstrom’s margins of 33.3% experienced a drag from the Rack business, which has been a positive to the company for a long time and is now its biggest business. For example, there are 116 Nordstrom full-line stores in the U.S., and 238 Nordstrom Rack locations.
“Nordstrom is after all a department store with all of the problems associated with it,” Hali said. “Rack is not a TJX, where they are always liquid and bringing to floor buy now, wear now [items].”
Even analysts that are upbeat about Nordstrom are concerned about same-store sales.
“Nordstrom has a best-in-class digital and physical customer experience, which is only getting stronger based on advanced fulfillment, data integration, and well-integrated store assets and talent,” Cowen analysts wrote. They also think Nordstrom’s localized strategy is a good one.
“Nonetheless, we remain on the sidelines as near-term valuation could be fair and we wait for greater visibility on both product margin and comparable store sales consistency.”
Cowen rates Nordstrom shares market perform with a $56 price target.
Nordstrom shares have gained 7.5% for the year to date while the S&P 500 index SPX, +0.22% is up 2.3% for the period.