Nordstrom department store,(Photo by Smith Collection/Gado/Getty Images)
It was a painful analyst session after Nordstrom announced their earnings results for the third quarter of 2021. Rack sales had dropped by 8% and labor costs were higher than expected. While management reaffirmed the full year’s outlook, I join those who hope it will happen, but caution investors of the work that has to be done.
There is no point to mourn about the past, by their own admission the Nordstrom family was too slow to act to save the third quarter. They admit that they were too slow and that they have to get the show going. Nordstrom reported after other retailers like Macy’s, Dillard’s and Kohl’s had reported excellent results and raised their forecasts.
Among Nordstrom’s top priorities is to improve Nordstrom’s Rack performance, improve overall profitability and optimize supply chain and inventory flow. Books could be written about the 3 key objectives. They require a review of the company’s margins and improve them; it requires review of fixed expenses and how to lower expense pressure. The list is long, and management must find ways to drive traffic. Urban stores – usually larger – are outperformed by suburban stores. It reflects customer’s reluctance to shop in crowded stores.
The company said it is taking steps to improve The Rack’s performance. It requires new, higher priced brands and a larger inventory. Certainly the 242 Rack stores need more attention and become fashion leaders in their communities at a lower price. (Rack store figure is from 2020 annual report.)
At the same time Pete Nordstrom announced that Nordstrom stores will carry an assortment of Fanatics and Asos fashions and to strengthen the fashion image of the main stores. 8% of their sales has now come of alternate relationships.
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The Nordstrom executive team has to address the many problems quickly to insure a strong holiday season.
Net earnings in the quarter were $64 million or $0.39 per diluted shares. Net sales increased 18% compared to the same quarter in 2020. If compared with 2019 sales dropped 1%. The anniversary sale, which last year was totally in the fourth quarter, was one week in the third quarter and had a positive effect on sales of about 200 basis points. The company further states that Nordstrom banner net sales increased 3% versus the third quarter of fiscal 2019. Sales of the Rack decreased 8% versus the 3rd quarter of 2019.
POSTSCRIPT: I have always admired Nordstrom’s drive for timely fashion, great customer service and innovative ideas. I hope management can pull together as a team and deliver improved sales and earnings in the fourth quarter.
