By Janet I. Tu. Updated February 27, 2017.
Nordstrom logged a strong fourth quarter, with both revenue and profit increases. But longer-term, tough challenges remain for the upscale retailer as sales at its full-line stores continued to decline.
While Nordstrom's earnings for the quarter ended Jan. 28 beat Wall Street expectations, its overall comparable sales -- meaning sales at stores open at least a year, and including its online operations -- declined 0.9 percent.
That "was below our plan, particularly for our full-line store business," said Blake Nordstrom, company co-president. Comparable sales for those U.S. full-line stores -- the large, posh apparel emporia that made Nordstrom's name -- fell 6.8 percent for the quarter, marking a sixth consecutive quarterly decline.
Neil Saunders, managing director of GlobalData Retail, summed up the results this way: "Nordstrom ends its fiscal year as a company of two halves: the mainstream business, which is struggling to grow; and the off-price business which, overall, is motoring along nicely."
Indeed, the upscale retailer's quarterly earnings, reported Thursday, showed a company whose results differed markedly along a couple of lines: full-price vs off-price, and bricks-and-mortar vs online.
Nordstrom's full-price business, which includes both U.S. full-line stores open at least a year and Nordstrom.com, saw net sales fall 2.8 percent. Its comparable sales decreased 2.9 percent from a year ago.
The company's off-price business, meanwhile, saw its net sales increase a healthy 10.7 percent. That segment, which includes both Nordstrom Rack stores and the online Nordstromrack.com and HauteLook, had comparable sales rise 4.3 percent.
Nordstrom Rack's growth in the quarter is "well above overall retail growth across the period, which indicates that Rack is not only growing but is taking market share," Saunders said in an email. Just as with TJ Maxx's buoyant results earlier in the week, "this type of offer is much more aligned with consumer demand and caters for a fashion savvy yet price sensitive shopper."
Even more stark was the difference in fourth-quarter comparable sales trends between the bricks-and-mortar stores and their online counterparts.
While the bricks-and-mortar full-line U.S. stores saw a 6.8 percent decline, Nordstrom.com saw an 8 percent rise.
Nordstrom Rack stores saw a comparable sales drop of 0.5 percent in the quarter, while Nordstromrack.com/HauteLook sales rose 29.2 percent.
E-commerce now represents nearly a quarter of Nordstrom's sales, up from about a fifth a year ago and from 8 percent in 2010, Mike Koppel, Nordstrom's chief financial officer, said during Thursday's conference call with investors.
"Our business has shifted from a 4-wall model to one that supports multiple channels," Koppel said.
That shift in business model meant heavy expenses as the e-commerce infrastructure was built out. But the company was able to cut those expenses last year, Koppel said, and "interestingly enough, in 2017, we're starting to see the profitability of online cross over to a higher margin than the store-based business."
Saunders of GlobalData believes the growth in Nordstrom's online sales has been cannibalizing its in-store sales.
"Nordstrom's full line .com business has traditionally performed well, however, in our data we see most of the growth as having come from existing consumers who, because they shop online, end up visiting stores less," he wrote. "In this sense, Nordstrom is a victim of its own success and needs to explore ways of improving connections between its channels, or of persuading online customers to shop more frequently and to buy more.
"Until Nordstrom can resolve this conundrum, it places a question mark over the wisdom of future expansion," he wrote.
Nordstrom executives acknowledged during the call that sales at its full-line stores were less than expected.
To help boost sales at those full-line stores that make up the bulk of the company's business, the company emphasized its plans to focus its merchandise on limited-distribution brands such as Ivy Park and J. Crew, and Nordstrom-exclusive brands.
It also reiterated efforts it's undertaking to better integrate its digital and in-store experiences, such as expanding to more stores the ability to allow customers to reserve clothing online to try on in stores. It also has a new chief innovation officer charged with leading the effort to better integrate the in-store and online experiences.
For the quarter, the company's agility in reducing inventory and expenses, along with the healthy sales in its off-price division, helped it achieve profits that beat Wall Street expectations.
The company reported earnings per share of $1.15 for the quarter, up 15 percent from the year-ago period. Excluding certain items, the adjusted earnings came to $1.37 per share, easily exceeding the $1.15 Wall Street consensus estimate from S&P Global Market Intelligence.
Nordstrom's revenue of $4.32 billion for the quarter was up 2.9 percent from a year ago.
For the full fiscal year, the company achieved record revenue, though its profit declined from last year.
The company logged total sales of $14.76 billion, up 2.2 percent from a year ago.
Its profits fell 41 percent from $600 million last year to $354 million this year. Earnings per share of $2.02 were down 35.9 percent from a year ago.
Excluding certain items, the adjusted earnings for the year came to $3.14, easily beating the S&P Global Market Intelligence consensus estimate of $2.94.
Nordstrom shares closed down 3.1 percent at $43.94 Thursday, and, after-hours after the earnings release, was trading at $45.44, up 3.4 percent.
A Wall Street analyst asked during the company's conference call Thursday whether the company had seen any impacts -- helpful or hurtful -- following President Donald Trump's tweet earlier this month berating the retailer for dropping his daughter Ivanka Trump's line.
Pete Nordstrom, co-president, replied: "That would be negligible -- not really discernible one way or the other."