Nordstrom Surges as Rack Discounter, Full-Priced Stores Thrive

(Bloomberg) -- Nordstrom Inc. sidestepped this week’s department-store carnage, with the retailer making strides in attracting shoppers for both full-priced and discounted merchandise.

The Seattle-based chain reported same-store sales that rose 4 percent in the latest quarter, exceeding analyst expectations and sending shares up as much as 15 percent in late trading. Consumers were drawn to both of the company’s main store formats -- full-price and off-price -- while members of their loyalty program made up a larger percentage of sales.

Nordstrom Surges as Rack Discounter, Full-Priced Stores Thrive

The better-than-expected results mark a welcome change for a domestic department-store sector that’s faced a tough week. While Macy Inc.’s raised its earnings and revenue guidance for the year on Wednesday, a spike in spending spooked investors and sent shares down 16 percent, making it the day’s worst performer in the S&P 500 Index. The pain continued Thursday as J.C. Penney Co.’s surprise prediction for an annual loss drove its stock down 27 percent, prompting one analyst to call the shares “worthless.”

Nordstrom clearly broke the mold. The company has been ramping up sales at its discount-focused Rack chain in an effort to avoid having to put items at its full-price stores on sale. A 23 percent gain in e-commerce sales also fueled the results.

Experimental

Nordstrom’s approach to overcoming the so-called “retail apocalypse” -- consumers’ shift away from traditional brick-and-mortar stores -- has been more experimental than its rivals. The chain now has an inventory-free store, and it also opened a store for men’s goods in Manhattan in April, where customers can purchase items online and pick them at any time -- even if the store is closed. A women’s location will follow across the street in the fall of 2019.

Thursday’s report builds on what has been a good year for Nordstrom investors. The stock has climbed about 10 percent since the start of the year, outpacing the gain in the S&P 500 Index. In March, after failing to agree on a buyout price, Nordstrom’s board and the Nordstrom family ended talks about taking the company private.

The chain raised its full-year earnings outlook to between $3.50 and $3.65 a share from its prior outlook of $3.35 to $3.55. The percentage gain in same-store sales, a key measure that focuses on established locations, topped the 1.1 percent estimate by Consensus Metrix.

Nordstrom also reported that gross profit margin, a percentage of revenue minus a range of expenses, widened to 35 percent. That’s 91 basis points higher than a year earlier.

The company did, however, attribute a percentage point of the 7.1 percent revenue gain in the period to an anniversary sale. The impact from the sale “is expected to fully reverse in the third quarter,” the company said in a statement.

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