Just one day after confirming the opening date of its massive new flagship in New York City, Nordstrom reported a strong drop in earnings in the first quarter and staggering sales, thanks to continued softness in physical retailing and a bungled update to loyalty program.
Net earnings for the first quarter of 2019 were $ 37 million, down 57% from the same period last year. The Seattle-based reseller's downbeat results echo poorly the first quarter figures for J.C. Penney and Kohl, who also reported Tuesday.
Investors were not satisfied. Nordstrom's profit last year of 23 cents per share was 47% lower than analysts' expectations, a surprise that sent the share price over 9% in the after-trade to $ 34.20.
Nordstrom's net sales for the quarter ended May 4 fell 3.5% to $ 3.44 billion. It was lower than Nordstom's own forecast at the beginning of the year. "While we expected smoother fourth-quarter trends to continue into the first quarter, we experienced a further deceleration," chairman Erik Nordstrom acknowledged in company statement Tuesday afternoon.
Like other upscale brick and mortar retailers, Nordstrom has struggled against competition from online stores such as Amazon and from discount dealers. But the company was also damaged by several strategic errors, according to Erik Nordstrom, and added: "We had some mistakes with the customer experience."
For example, in his Nordy Club Rewards program, which accounted for 60 percent of initial purchase sales, the dealer turned away from the use of sending paper notes to customers, "but later discovered that a segment of our customer bases getting on these notes by mail, "said Nordstrom. "As a result, we saw a reduction in traffic over Full Price and Off Price."
Compared to this error, the company had cut its digital marketing budget to spend more on its loyalty program, which did not deliver expected results.
The company also owed its product composition, especially in women's clothing.
All told that the dealer had declining sales in both full price and off-price operations, which fell by 5.1% and 0.6% respectively in the first quarter. Net sales increased by 7% over a year ago, but that increase was less than half the price added between 2017 and 2018.
Nordstrom's latest results will only add to the impression that the dealer, known for its exclusive products and gold Plus customer service, loses its mastery of physical retailing, even though it is struggling to gain market share online.
Since 2015, Nordstrom has seen a decline in the share price by more than half, despite measures to increase the share price through a large share of repurchases. Only in the first quarter, Nordstrom used $ 186 million to buy back its own shares on the open market.
There were positive notes in Tuesday's earnings call. The company has already upgraded its loyalty program, and "Our first results showed better trends for engagement, traffic and usage from our loyalty customers," said Nordstrom. The company also invests more in online marketing and makes adjustments to its product mix.
Nordstrom is on track to open a large new brick mortar site: a seven-storey, 320,000-square-foot megastore on West 57th Street in New York City. Scheduled to open on October 24, according to Bloomberg, the flagship is meant to allow Nordstrom to compete from top to top with its biggest luxury rivals, including Bloomingdale and Saks Fifth Avenue.
Overall, Erik Nordstrom said, the long-term prospects for the company are still bright. "This is well within our control to turn around," he said.
Nevertheless, Nordstrom downgraded its financial forecasts for 2019: Where the dealer had only hoped for a 1% to 2% increase in sales, it now expects anywhere from zero growth to a 2% decline.