Nordstrom Q3 earnings fall amid labor costs, weak Rack sales

Nordstrom’s third-quarter earnings missed Street expectations. Photo: sockagphoto / Shutterstock.com

Nordstrom Inc.’s third-quarter earnings fell short of estimates due to higher labor costs and challenges in its off-price Rack division, whose sales fell from pre-pandemic levels.

The department store retailer earned $64 million, or $0.39 a share, in the quarter ended Oct. 30, compared with $53 million, or $0.34 a share, in the year-ago period, which included a tax benefit of $19 million related to the CARES Act. Analysts had expected earnings per share of $0.57.

Net sales increased 18% to $3.6 billion, beating estimates, over the year-ago period, but were down 1% compared to the same quarter in 2019. At the Nordstrom banner, net sales rose 11% from a year ago and were up 3% compared to the third quarter of 2019.

The timing of the company’s Anniversary Sale had a positive impact on Nordstrom banner net sales of approximately 300 basis points compared with the third quarter of 2019.

At Nordstrom Rack, net sales increased 35% compared to last year, but fell 8% compared with 2019.

Digital sales fell 12% year-over-year and rose 20% on a two-year basis, E-commerce represented 40% of total sales.

Sales in the home, active, designer and beauty categories had the strongest growth compared with the third quarter of 2019. Geographically, Nordstrom's comparable store sales in the Southern regions, including Southern California, grew 8% versus 2019 and outperformed the Northern regions. Comparable sales in suburban area stores continued to be stronger than urban stores in the third quarter, with both improving sequentially over the second quarter.

Selling, general and administrative expenses rose in the quarter mostly due to labor costs.

“We have long benefited from a commitment to customer service, new and compelling merchandise, innovative brand partnerships and interconnected digital and physical assets said Erik Nordstrom, CEO, Nordstrom. “However, we need to move faster to capitalize on these strengths and profitably grow market share.”

In July, Nordstrom teamed up with made-to-measure menswear company Indochino to open 21 in-store Indochino shops in its department stores nationwide. The shops offer personalized suiting, shirts, chino and outerwear. More recently, in November, the retailer entered into a partnership with Fanatics, a digital platform that sells licensed sports merchandise, to offer thousands of sports on the new Nordstrom.com Sports Fan Shop. The retailer will power the front-end digital customer experience. Fanatics will then fulfill and ship the orders to customers.

Nordstrom said that company is “taking action” to improve performance at Nordstrom Rack, including optimizing inventory levels, better balancing price points and increasing brand awareness.

“Work is also underway to improve merchandise margin across the company and ensure we have the visibility and flexibility we need to serve our customers seamlessly, despite global supply chain challenges,” he added.

On the company’s earnings call, Nordstrom and his brother Peter Nordstrom, who serves as president and chief brand, reviewed some of the strategies to improve president and chief brand, reviewed some of the strategies being put in place to improve Nordstrom Rack. These include enhancing selections of “coveted” brands offered at “premium values,” and reversing an over-dependence on lower-priced goods in certain product categories. The retailer also launched a marketing campaign in September to raise brand awareness.

The company reiterated its fiscal 2021 outlook of total revenue rising more than 35% compared with fiscal 2020.

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