Thursday, December 2, 2021

Nordstrom shares fell sharply due to labor costs and inventory problems.

While many retailers saw sales boom, Nordstrom watched its share price fall on Tuesday as inventory problems, rising labor costs and lost opportunities led to a third quarter result well below market expectations.

The Seattle-based retailer reported $ 64 million in profit for the quarter ended October 30, up 21% from the same quarter in 2020 but barely half what the company earned in the third quarter of 2019, before the pandemic.

Net sales were disappointing as well, with reported $ 3.5 billion in the quarter, about 18% higher than the same quarter a year ago, but 1% lower than the 2019 quarter.

In a conversation with analysts on Tuesday afternoon, Nordstrom executives pointed to external concerns such as supply chain problems and underdeveloped sales in urban markets, where the pandemic’s impact on in-store shopping is more pronounced.

But they also acknowledged that Nordstrom, the last major retailer in Seattle during the Amazon era, was slow to adjust course as problems arose.

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“We did not react as quickly and aggressively as we would like,” Pete Nordstrom, president and chief brand officer of Nordstrom, told analysts.

Tuesday’s results, which follow lower-than-2019 second-quarter profit and $ 166 million loss in the first quarter, were also well below analyst expectations for the third quarter. The company’s share price fell nearly 25% on Tuesday after the close to $ 24.53 after Tuesday’s close at $ 31.93. This turned out to be the lowest price since November last year, although it was still about double the levels seen in the early months of the pandemic.

“The market is extremely volatile at this time, punishing retailers who fall short or below expectations and reward those who do,” said Zachary Warring, equity analyst at CFRA Research in New York.

Nordstrom’s third-quarter troubles came as the retailer struggles to tackle the global pandemic by repositioning itself to compete in the Amazon and digital shopping era.

Sales at Rack’s discount stores were 8% below their 2019 level, in contrast to branded department stores, which grew a modest 3% over the same period.

Rack’s problems were partly a reflection of stock shortages, Pete Nordstrom said, particularly in key categories such as women’s apparel and footwear, which were in higher demand than the retailer had expected.

“Our source of goods was disrupted during the pandemic, and this led to … just a complete shortage of stocks,” he said. “In response, we tried to increase our offer as quickly as possible, but were unable to sell as many products as we needed in certain key categories, and as a result, we missed the opportunity to gain additional sales.”

Another blunder, according to the seller, was that the counter was overflowing with cheaper goods to prevent bargain hunters from rushing to bargain competitors. “To be honest, we’ve gone too far,” said Pete Nordstrom. “We brought in a few more products in categories that we heard from customers are not what they are looking for.”

Neil Saunders, retail analyst and managing director of GlobalData Retail, put it more bluntly. “Most stores are a mess and there are too many items to make purchases difficult,” he said in an email Tuesday afternoon.

There was good news though. Nordstrom reported improvements in performance in categories such as formal and work wear and makeup – “a promising signal that customers are starting to return to social and work activities,” the company said.

Nordstrom’s massive investment in digital retail continued to pay off. Online sales for the quarter, although down 12% from 2020, when online sales were growing for many retailers, were up 20% from 2019 and now account for 40% of sales.

Another highlight is Nordstrom’s efforts to combine online shopping and personal shopping – for example, in-store online pick-up, which currently “ensures maximum customer satisfaction” and is “our most rewarding customer journey,” said CEO Eric Nordstrom. said.

Officials said the company has undertaken “in-depth analysis” of ways to improve productivity in its Rack stores, supply chain and “inventory flow” and expressed confidence in “significant improvements ahead of the holidays.”

However, investors seemed to need more persuasion. Nordstrom’s third-quarter earnings are about 30% below analyst forecasts, and CFRA’s Warring notes that year-over-year earnings, although up 35% from 2020, will still be 7% below 2019.

GlobalData Retail’s Saunders praised Nordstrom’s outspokenness about its concerns, but believes the retailer faces a difficult road to make the necessary changes.

“Management has recognized the problems and said it is trying to solve them,” Saunders said. “But the problems have been inherent in businesses for over a year now, so there is a certain degree of skepticism about whether they will be able to meet the objectives.

These questions are all the more pressing given that other retailers are posting record sales, fueled by pent-up consumer demand. Both Macy’s and Kohl’s, often seen as competitors to Nordstrom, recently raised their forecasts for 2021.

“Consumers don’t spend money,” Saunders said. “Nordstrom lacks a retail batch.”

Insurance for the economic impact of the pandemic is provided in part by Microsoft Philanthropies. The Seattle Times retains editorial control over this and all coverage.

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