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Nordstrom stock tanks on Q1 earnings miss, lowers guidance

Shares of upscale retailer Nordstrom (JWN) plunged above 9% after the bell after the company reported disappointing first-quarter results. In addition, the company lowered its fiscal 2019 outlook, which is the most worrying part for investors resulting in a drop in stock price.

It’s important to recall that the retailer’s stock has tanked 19% this year due to muted comp-store sales growth reported in the Q4 period. The share price touched a new 52-week low on May 17 of $36.37. However, analysts are expecting the stock to breach $47 mark in the next 12-months, which is a jump of 24% from today’s level of $38.

Disappointing Outlook

Nordstrom doesn’t expect to see any recovery on the top line in the current fiscal year. The retailer has cut back its guidance provided last quarter. It now expects sales to be flat-2% decrease compared to the 1-2% growth offered last quarter.

Earnings is revised downwards to $3.25 to $3.65 per share over the prior outlook of $3.65 to $3.90 per share. Analysts are expecting sales growth of 1.5% and EPS of $3.74, which was at the midpoint of the retailer’s prior outlook.

Nordstrom reports Q1 2019 results

Q1 Performance

Same-store sales, one of the key metrics to watch, decreased 3.5% which means the retailer still struggles to bring in traffic to its stores. The company attributed the drop in sales due to the issues faced in the launch of the loyalty program, additional investments in digital marketing and customizing the merchandise based on customer needs.

However, Erik Nordstrom, co-president stated: “We had executional misses with our customers, and we’re committed to better serving them. This is well within our control to turn around.”

It’s going to be an uphill task for the company to turnaround the dwindling sales growth unless its strategic plans are executed to perfection.

For the first quarter, sales declined 3.3% to $3.44 billion while earnings nosedived 55% to $0.23 per share. The company failed to beat street estimates on both the top and bottom line. Analysts were expecting sales of $3.57 billion and adjusted EPS of $0.43 per share. The retailer witnessed a drop in sales on both Full-Price and Off-Price divisions.

Full-Price store sales decreased 5.1% carrying forward its dismal performance from the last quarter. Off-Price store sales saw a modest dip of 0.6% over 4% growth reported in the Q4 period. The silver lining in the quarter has been the 7% growth in digital sales, which contributed 31% to the top line.

Glimmer of Hope

Nordstrom is planning to open its flagship women’s store in Manhattan in October. It’s worth noting that this store has been announced in 2012 and is scheduled for opening after a hiatus of seven years.

The retailer has huge hopes from the 320,000-square-foot store which has seven floors. The retailer is expected to get a boost in sales once the store opens which would be reflected in the fiscal 2020 results.

In the first week of May, the retailer announced its plans of opening two new Nordstrom Local stores in the New York City this fall, which would offer value-added services to its clients. Since the small-store “Local” format concept has been well received in Los Angeles, Nordstrom is expanding this strategy to New York with customized services catering to the region.

The company expects the local market strategy to work well which would result in the top line growth in the near future as a result of a hike in consumer spending from these stores.

Trade War Concerns

Nordstrom’s peers Kohl’s, J.C. Penney also reported disappointing quarterly results which show that the brick-and-mortar stores are still finding it tough to bring back customers to the stores.

Things are expected to get even tougher for these retailers as the ongoing trade war between the US and China would result in increased tariffs which would further impact their ongoing plans to bring back footfalls to their stores.

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