Retail had plenty to figure out even before the coronavirus muddled the outlook.
Nordstrom Inc., Target Corp. and Kohl’s Corp. all showed continued signs of that general retail strain on Tuesday, underwhelming with fourth-quarter reports that illustrated just how much more reinvention is needed to connect with new consumers.
Now comes the coronavirus outbreak, which has shaken global stock markets, rattled consumers desperate to buy hand sanitizer and bottled water, and muddied any possible outlook for at least the next few months.
The titles reflect their current and ongoing responsibilities. Previously, they were both co-ceo’s.
“This is not about a hierarchy,” said Erik Nordstrom. “It’s about helping clarify respective roles.…Pete and I continue to be partners in ensuring Nordstrom’s success, and we are both focused on executing our long-term plan. We look forward to continue working with our board to deliver on our shared vision for the future of Nordstrom.”
The company also reported that its fourth-quarter net earnings dropped to $193 million compared with $248 million during the same period in fiscal 2018. Fiscal 2019 included $29 million of charges, after tax, primarily representing non-cash asset write-downs resulting from the integration of Trunk Club in addition to debt refinancing costs.
Earnings before interest and taxes were $299 million, or 6.7 percent of net sales, compared with $333 million, or 7.6 percent of net sales for the same period in fiscal 2018. Excluding integration charges of $32 million, EBIT margin slightly decreased compared to the prior year.
However, net sales grew 1.3 percent and improved by more than 400 basis points from year-to-date trends, with full-price sales increasing 1 percent and off-price sales rising 1.8 percent.
Digital sales grew 9 percent and represented 35 percent of sales. Online order pickup contributed more than half of digital sales growth in full-price.
Full-year net earnings were $496 million compared with $564 million for fiscal 2018. Fiscal 2019 included integration charges and debt refinancing costs of $29 million, after tax. EBIT was $784 million, or 5.2 percent of net sales, compared with $837 million, or 5.4 percent of net sales, for fiscal 2018. Excluding integration charges of $32 million in 2019 and credit-related charges of $72 million in 2018, EBIT margin deleveraged by approximately 50 basis points.
For fiscal 2019, net sales decreased 2.2 percent to $15.13 billion from $15.48 billion, in-line with expectations. Full-price net sales decreased 3.5 percent. Nordstrom operates 116 full-line department stores. Off-price net sales increased 0.2 percent. Nordstrom operates 248 Rack off-price stores. Digital sales grew 7 percent and represented 33 percent of sales.
For fiscal 2020, which does not include any potential impact from the coronavirus, Nordstrom expects a 1.5 to 2.5 percent sales increase and EBIT of $815 million to $855 million.
Last year, “Through our customer focus, inventory efficiencies and expense discipline, we drove improvement in sales trends in full-price and off-price, and we increased profitability during the second half of the year,” said Erik Nordstrom. “Our 2019 results reflected the accelerated rollout of our market strategy, our strength of Nordstrom Rack’s execution, improved merchandise margins and realized expense savings that were 10 percent above our plan.
“As we move forward, we are further leveraging digital capabilities and scaling our market strategy to drive sales and earnings growth. The momentum from our investments and market strategy is enabling us to get closer to customers, transforming the way we’re serving them.”
Nordstrom’s market strategy is about creating greater consumer engagement with and greater access to Nordstrom services such as order online, pick up in store, alterations and styling, across the Nordstrom department stores, Rack off-price stores and Nordstrom Local service hubs, and provide greater convenience. The market strategy also centers on efforts to leverage inventories more efficiently.
In 2019, the company accelerated its strategy to five top markets — New York, Los Angeles, Chicago, Dallas and San Francisco — resulting in “outsized customer engagement and a lift in sales trends of 80 basis points relative to other markets in the fourth quarter,” the company said.
Based on the results, Nordstrom this year plans to expand its market strategy to five additional markets — Philadelphia; Washington, D.C.; Boston; Seattle, and Toronto — for 10 markets, which represent more than half of the company’s sales.
Other plans for 2020 call for launching a dedicated e-commerce site in Canada; ramping up the supply chain network to improve delivery speed on the West Coast, which represents 40 percent of customers; integrating Trunk Club into Nordstrom full-line stores and nordstrom.com to create a cohesive styling offering across Nordstrom and to gain efficiencies.
Target reported stronger earnings than expected for the 2019 fourth quarter with market share gains in beauty and apparel, and wide acceptance of its same-day suite of fulfillment options.
But sales weren’t able to rebound from a disappointing holiday period marked by weak demand in critical categories such as toys and electronics, and the retailer said it didn’t buy deeply enough, which left inventories too light.
Earnings per share for the fourth quarter ended Feb. 1 of $1.69 a share exceeded analyst expectations of $1.65. However, revenue of $23.4 billion fell short of Wall Street’s $23.5 billion projection. Same-store sales increased 1.5 percent, in line with expectations.
Fourth-quarter comps reflected a 20 percent increase in comparable digital sales, while full-year comparable sales advanced 3.4 percent, reflecting comparable digital sales growth of 29 percent.
Shares of the firm dropped 3 percent to $105.84.
Brian Cornell, Target’s chairman and ceo, on a conference call with retail analysts, said the deadly coronavirus has been responsible for a recent traffic surge at Target stores with consumers stocking up on staples, food and beverage items and disinfectants.
“We’ve seen aggressive shopping at our stores and we’re working to make sure we’re elevating inventory for what we believe will be continued demand for stock-up items,” Cornell said. “We haven’t seen a large impact on our business or outlook from the coronavirus. We have a highly sophisticated supply chain and are tracking by category and factory level. We feel confident that we can manage the situation. From a merchandising standpoint, we know we’ll see some delays, but we’re getting out in front of that.”
Beauty, an area in which Target continues to invest, “was driving acceleration in our performance. It’s gone from being strong to even stronger,” Cornell said, adding, “we had unusually strong growth in apparel in 2019. Cornell said the company was “disappointed with performance in the fourth quarter in several spaces — toys electronics and parts of our home business. We’re learning from this year, and we’ll make sure that we rebalance the inventory.
“We were disappointed by our comp only growing 1.5 percent,” Cornell said. “Next year, we’ll focus on fewer items in a bigger way, making sure we’re on trend with items that will drive demand. We’ll say, ‘Here are the items we’re going to stand for and make sure we’re bold and deep as we make those buys and make sure they deliver on our brand promise.’”
Target in the last three years spent $4 billion on remodeling stores while reducing stockkeeping-unit counts and improving presentation, which resulted in sales increases of 2 to 4 percent at renovated units.
The retailer continues to expand its small-format store fleet, with 36 units on tap for 2020. “We’re going to keep expanding in New York and Los Angeles,” said John Mulligan, chief operating officer, adding that store size is shrinking further. “Our smallest is 12,000 square feet, and we’re now exploring 6,000 square feet.”
Kohl’s saw a disappointing year in 2019 with steep declines in profits and sales, but believes this year will begin to see things turn around.
The department store chain released quarterly earnings Tuesday, and while the results weren’t great, they were better than analysts’ expectations.
For the three months ending Feb. 1, revenues were $6.83 billion, up slightly from $6.82 billion the same time last year. Income for the fourth quarter was $308 million, down from $366 million a year earlier, but still better than forecast.
Meanwhile, sales for the full 2019 year were $19.9 billion, down from $20.2 billion in 2018. The annual income was $769 million, down sharply from $927 million a year earlier.
Shares of the company fell 2.6 percent to $37.43.
“While 2019 was a year in which our financial results did not meet our expectations, it was also a year of innovation and investment that further strengthened Kohl’s differentiation in the market,” said Michelle Gass, Kohl’s ceo. “We are encouraged by the acceleration of traffic and new customer acquisition in our stores and online driven by the unprecedented level of new brands and partnerships we launched during the year.”
Categories such as active, beauty, intimates and men’s wear remained strong growth drivers for the company. But headwinds persisted in the women’s apparel business, particularly in classics and contemporary styles.
“We recognize that we need a much more significant reinvention in women’s to improve the trajectory moving forward,” Gass told analysts on a conference call. “After a critical assessment across our entire brand offering, we’ve made the decision to exit eight women’s brands over the coming year,” she said, but was tight-lipped about which brands.
Kohl’s store traffic has been steadily declining for some time as consumers continue to shop online and in off-price stores like T.J. Maxx and Marshalls. But the retailer has a few tricks up its sleeves. These include its partnership with Amazon, which allows shoppers to return products they purchased on Amazon to Kohl’s stores.
The Amazon tie-up drove positive comps in January.
“It’s clear, and we know this from our metrics, that Amazon is bringing in a newer and younger customer, and bringing it into the stores,” Gass said. “Stores are critically important for us and so we’ve been really encouraged to see that level of engagement.”
Gass added that Kohl’s retail fleet — more than 1,100 in 49 states — along with the company’s customer base of 65 million shoppers, are some of Kohl’s biggest strengths.
But not all analysts have been sold. The department store is still competing in the age of e-commerce and competitors like J.C. Penney Co. Inc. and Macy’s Inc. are also struggling with declining store traffic.
“Until we have greater visibility, we remain cautious on the sidelines waiting for an inflection to more favorable business trends,” said Jen Redding, an analyst at Wedbush.