Nordstrom Inc. bucked the trend in traditional retail, pushing third-quarter profits higher despite a decline in sales.
And even as the company’s copresidents, Pete and Erik Nordstrom, dropped their latest stealth effort to take majority control of the company last month, they are driving the retailer forward, emphasizing the market strategy that was first laid out in Los Angeles.
The approach uses Nordstrom’s various contact points with shoppers — full-line stores, digital, off-price and the local service concept — to build business and strengthen relationships with consumers.
Erik Nordstrom told analysts on a conference call that, “Our market strategy is transforming our business model and how we’re serving customers. We have a unique mix of assets — full-price, off-price, stores and online — and we are further linking our businesses to serve customers in new and differentiated ways. The success of our strategy in Los Angeles adds to our confidence as we expand to our top 10 markets.”
The market strategy has already been expanded to New York City, San Francisco, Chicago and Dallas. In Los Angeles, the more holistic approach of serving customers helped that market’s sales growth outpace growth in other markets by 100 basis points.
Nordstrom could use a little more of that. Even though the company’s stood out as other traditional players such as Macy’s Inc. and Kohl’s Corp. lagged, the big value players Walmart Inc., Target and TJX Cos. Inc. have all proven to be both building share and resilient to changes in the market and the consumer.
Nordstrom’s net profits rose to $126 million, or 81 cents a diluted share, from $67 million, or 39 cents, a year ago. Factoring out a $49 million charge last year, profits rose 9 percent during the quarter.
Earnings per share came in 17 cents ahead of the 64 cents Wall Street anticipated, helping drive the company’s stock up 8.4 percent to $37.21 in after-hours trading.
Revenues for the quarter ended Nov. 2 fell 2 percent to $3.56 billion, missing analyst projections that called for sales of $3.67 billion. Sales in the company’s full-price business sank 4.1 percent as its off-price sales grew 1.2 percent. The firm’s digital sales increased by 7 percent and now account for 34 percent of its overall turnover.
The early read on the new women’s store on 57th Street in Manhattan was positive. The location saw 85,000 visits during its first weekend in October.
“New York City represents our largest online market and we expect to see a halo effect when we open a physical location,” Nordstrom said. “Already the sales uptake in the [nearby] men’s store is exceeding expectations. In addition one of Nordstrom’s key points of difference is the breadth of our merchandise assortment which creates an inclusive shopping experience.
“Customers at this store have responded to our offering and top-performing brands include Nordstrom-made labels, Topshop, Nike, Canada Goose, Louboutin and Valentino,” he said. “Opening this flagship has been perhaps the most important milestone in our company’s long history is the culmination of efforts across so many people and we are grateful to them all.”
The completion of the project was also a turning of the page for Nordstrom.
With the store done, capital expenditures are expected to go from 6 percent of sales this year down to 3 to 4 percent next year.
And shortly after the store opened, the company revealed in a Securities and Exchange Commission filing that its board had had “discussions” with Pete and Erik Nordstrom “around succession planning and the continued evolution of their and others’ management roles and responsibilities with the goal of ensuring that the company is well-positioned to execute on its strategic plan and develop senior management and leadership.”
The same filing also revealed that the brothers had taken back up the family’s effort to get back majority control of the firm, but then dropped it again.
“The co-presidents presented the company’s independent board members with proposals involving the company that, if consummated, would have resulted in certain members of the Nordstrom family increasing their beneficial ownership of company common stock from approximately 31 percent to slightly in excess of 50 percent.”
The discussions were terminated by “mutual agreement” and “the full Nordstrom board, including the co-presidents, continues to be focused on the company’s business operations.”
While the earnings results were stronger than analysts projected for the quarter, Nordstrom’s outlook for the year became only modestly more bullish. The retailer now expects earnings of $3.30 to $3.50 a share where the lower-end of the range had been at $3.25.