Nordstrom Shares Dive as Q3 Underwhelms Due to Rack and High Labor Costs

Nordstrom's CEO said the Seattle-based retailer must move faster to capitalize on its strengths, take market share and improve the performance at Rack.

Nordstrom Inc., seeing revenues on the rise, reported third-quarter net earnings of $64 million, compared to $53 million during the year-ago period, though the retailer is still behind its 2019 sales and profit levels and Wall Street sent the firm’s shares tumbling by 21.5 percent in after-hours trading.

Rival retailers including Macy’s Inc. and Kohl’s have been exceeding their 2019 performances and have raised their outlooks for this year. On the other hand, Nordstrom, when it released its third-quarter numbers on Tuesday, reaffirmed its outlook for 2021.

While beating sales expectations, the earnings fell below Wall Street expectations and were brought down due to higher labor costs and challenges at the Rack off-price division, while the Nordstrom banner — the full-line store and digital businesses — showed increases. The miss versus expectations sent Nordstrom’s shares down in after-hours trading to $25.07 after they closed slightly down on the day.

Earnings before interest and taxes came to $127 million in the third quarter ended Oct. 31, compared with $106 million during the same period a year ago primarily due to higher sales volume and improved merchandise margins, partially offset by labor cost pressure.

EBIT was $66 million lower than the third quarter of fiscal 2019 due to fulfillment and labor cost pressures, partially offset by benefits from resetting the cost structure in 2020. Last quarter also included a $19 million tax benefit associated with the CARES Act.

Third-quarter net sales increased 18 percent versus the same period in fiscal 2020 but decreased 1 percent versus the same period in fiscal 2019. The timing of this year’s Anniversary Sale, with about one week falling into the third quarter of 2021, had a positive impact of about 200 basis points on net sales compared with fiscal 2019.

During the quarter, Nordstrom banner net sales increased 3 percent versus the third quarter of fiscal 2019, which included an approximately 300 basis point positive impact from Anniversary Sale timing.

Net sales for Nordstrom Rack last quarter decreased 8 percent versus the third quarter of fiscal 2019.