NEW YORK — Nordstrom Inc. felt the wrath of analysts Monday when it came out with first-quarter results that were better than a recent forecast.
This story first appeared in the May 20, 2003 issue of WWD. Subscribe Today.
The company said a systems error deflated recent estimates, allowing the Seattle-based better department store firm to turn in a better than anticipated first quarter.
However, analysts made it clear, and company executives acknowledged, that the inaccurate approximation had damaged the firm’s credibility. Nordstrom’s officials promised better in the future.
Net income mounted to $27.2 million, or 20 cents a share, for the quarter ended May 3. This compared with year-ago losses of $24.6 million, or 18 cents, a mark that was deflated by $55 million in non-recurring charges and impairment related to an accounting change and the purchase of a minority interest in nordstrom.com. Without the one-time items, profits for the first-quarter fell below the year-ago level of $30.4 million, or 22 cents.
Sales for the three months increased 7.8 percent to $1.34 billion from $1.25 billion a year ago. Comparable-store sales fell 1.4 percent.
In a statement, president Blake Nordstrom noted: “Despite the challenging retail environment, we are encouraged by our relative sales performance this past quarter and we are working diligently to continue to build market share. We remain focused on our core initiatives of achieving sustained same-store sales increases through service and merchandise, integrating new technology and reducing expenses, as there are the key drivers of future improvement.”
However, it was the missed forecast that dominated the late afternoon conference call with analysts. On May 7, the Seattle-based retailer pegged its earnings for the quarter at a range of 12 to 15 cents a share — 5 to 8 cents below the profits realized in the quarter.
Mike Koppel, executive vice president and chief financial officer, acknowledged on the call, “The magnitude of this difference is not acceptable.”
Nordstrom’s inventory stock ledger system, implemented in February, was not accurately recording the firm’s freight expense, Koppel noted. The firm also finished putting a new inventory system in place during the quarter, which required the new stock ledger system.
Some of the difference between the projection and the actual result was a product of higher-than-planned sales volume in Nordstrom’s European Façonnable wholesale business.
In all, income came in about $11 million higher than anticipated.
Koppel added, “We are extremely aware of the serious impact this has on our creditability with you, the investment community. We are taking the necessary steps to improve the accuracy of our projections.”
Nordstrom has been updating its technology to keep pace with the industry.
“We’ve got a lot going on and we’re way behind in terms of technology infrastructure,” said Koppel. “We’ve done a lot in the last couple of years.”
He assured analysts and investors, though, “We have validated this system and we’re confident that this is not going to give us any more surprises in terms of margin.”
Nordstrom added, “Mike and I along with our entire leadership own this. We are committed to improving the forecasting process.”
Markdowns are expected to continue to pressure the firm in the second quarter, when it’s looking for flat comp-stores sales and earnings of 35 to 40 cents a share. For the year, comps should also be flat with earnings of $1.19 to $1.23 a share.
Earnings were released after the close of the market, but Nordstrom shares gave up 30 cents, or 1.9 percent, during the day Monday to close at $15.86 in New York Stock Exchange trading.