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Nordstrom Shares Slip as First-Quarter Earnings Fall Flat

The stock's off 11% following a weak report.



shares slipped 11% after the retailer last night turned in shaky first-quarter earnings.

For the quarter ended April 30, the Seattle-based retailer reported earnings of $31.5 million, or 22 cents a share, on sales of $1.04 billion. For the year-ago quarter, earnings were $32.3 million, or 21 cents a share, on sales of $1.04 billion. The

First Call

consensus estimate called for earnings of 24 cents a share. Sales at stores open at least a year fell 2.6%.

The most recent quarter included what Nordstrom called nonrecurring costs totaling 2 cents a share related to the relocation of a data center to Denver from Seattle. But some shareholders and analysts took issue with how these costs were classified. If it weren't for the one-time outlay, Nordstrom would've hit the consensus on the nose.

If the costs "were truly one-time in nature, they would be below the line" and taken as a one-time charge to be amortized over a period of time, said an analyst who asked to remain anonymous. Instead, Nordstrom expensed the item in the quarter as if it were an ongoing operating cost.

"It's nonrecurring in that we've never moved our data system in the history of the company and we won't move it again in the future," said Nordstrom Chief Financial Officer Michael Stein. "It's not part of our core operations."

Either way you slice the costs, shareholders were disappointed with Nordstrom's results, which had been

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expected to show weakness.

"If you look at the numbers that Nordstrom reported and compare that to what Federated reported this week, it makes me want to puke," said a money manager who invests in retail companies but doesn't hold a position in Nordstrom. Wednesday,

Federated Department Stores


beat analysts' earnings estimates for its fiscal first quarter by 8 cents per share.

Nordstrom is struggling with some fashion issues as it tries to tighten its inventory. And those problems are unlikely to dissipate in the fiscal second quarter. Stein warned that same-stores sales would likely remain negative for that period, which ends in July, but should turn positive by year-end.

"They've recognized the problems," said Jennifer Black, an analyst with

Black & Co.

, which rates Nordstrom accumulate. (Her firm hasn't done any underwriting for the company.) Black says Nordstrom's buyers became too conservative in their purchases as they tried to shrink inventory.

"I believe they're going through their entire fall line and making changes," she says. "There needs to be a little more sizzle."

Investors would no doubt agree.