Why Nordstrom Missed Its Earnings Mark Despite the Retail Rebound

Nordstrom’s stock took a hit in after-hours trading on Thursday after the retailer’s third-quarter earnings came in well below analyst expectations.

The department store chain reported earnings per share of $0.39 versus the $0.66 forecast by Wall Street, a gap caused largely by a one-time charge of $72 million paid to customers that were erroneously charged higher interest rates on delinquent store card accounts. The payout dragged net income down 42 percent to $67 million during the quarter ended Nov. 3, compared with $114 million during the same period last year. (Without the charge, which accounted for a $0.28 hit on the quarter’s earnings, Nordstrom would have topped expectations, the company’s co-president Blake Nordstrom said on a call with investors.)

When asked about the charge by an analyst on the call, CFO Anne Bramman emphasized that a relatively small number of accounts were affected. “It’s less than 4 percent of our cardholders, so I think you just have to understand the materiality of it,” she said. “Having said that, we certainly do not like having this happen with our customers and we are very sorry it took place.

The company’s numbers were also affected by accounting changes related to the timing of its annual blockbuster anniversary sale, so while total sales increased 3 percent during the quarter — with off-price increasing 5.8 percent to full-price’s 0.4 percent — executives highlighted the 5.1 percent growth during the combined second and third quarters versus the same period in 2017. It also lifted its outlook slightly for the full year, raising net sales guidance to $15.5 billion to $15.6 billion versus the prior view of $15.4 billion to $15.5 billion, and narrowing its EPS outlook to $3.55 to $3.65 from $3.50 to $3.65.

Going into the all-important holiday season, the company will be looking for results that will put it back in Wall Street’s good graces, particularly since it has been among the retailers driving the industry’s rebound this year, and many other big names in the field have been on an upward swing. (Macy’s, for one, more than doubled its earnings year over year in the third quarter.)

To do so, Nordstrom will likely be looking to e-commerce as a major growth driver, as digital sales now account for 30 percent of its total, it said in the release.

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