SEATTLE -- Nordstrom Inc.'s shares fell more than 9 percent yesterday after it reported a surprising drop in fiscal second-quarter earnings, as the retailer was hurt by a new strategy to offer pricier brands of women's clothing.
The department store chain is shifting its focus toward better-known labels to distance itself from moderately priced retailers such as Sears, Roebuck & Co. The change is also aimed at reviving earnings, which have fallen for six straight quarters.
To clear room for the new apparel, Nordstrom slashed prices. That ate into profits, pushing down net income 17 percent to $44.8 million, or 55 cents a share -- well short of the 73-cent estimate of 21 analysts surveyed by Zacks Investment Research. A year earlier, Nordstrom earned $53.9 million, or 65 cents.
The decline in earnings "created some anxiety about when Nordstrom will earn more money," said Edward Weller, an analyst at Robertson Stephens in San Francisco.
Shares in Seattle-based Nordstrom fell $3.50, nearly 9.2 percent, to $38.25 in trading of 8 million shares, 15 times the three-month daily average. The stock, which touched a 52-week low of $36.375, was the fifth-most active issue on U.S. markets.
L Clearly, there are risks to the new strategy, analysts said.
While upscale chains such as Saks Fifth Avenue and Neiman Marcus have done well, the higher-priced market is jam-packed with stores and demand is declining as more Americans are choosing more moderately priced chains.
"Right now, Nordstrom is straddling the fence and they clearly have to do something, but this strategy leaves them very vulnerable," said Kurt Barnard, a retail consultant and president of Barnard's Retail Marketing Report.
While analysts said the merchandise change should improve Nordstrom's results, the company hasn't said when that will happen -- raising concern among investors. As a result, Daniel Barry, an analyst at Merrill Lynch & Co., cut his third-quarter estimate to 36 cents a share, the same as the year-earlier quarter. He also reduced the stock to medium-term "neutral" from medium-term "buy."
Analyst Patrick McCormack at Dean Witter Reynolds also downgraded Nordstrom, to "swap" from "neutral."
Sales for the quarter ended July 31 rose 8 percent to $1.24 billion. Same-store sales rose 1.1 percent in the quarter, but slipped each month as the quarter progressed. Sales at stores open at least a year increased 3.3 percent in May and 1.4 percent in June but fell 0.6 percent in July.
Much of that was because of cooler weather, which hurt sales throughout much of the retail industry, said Alan Millstein, head of Fashion Network Report, a retail industry newsletter.
"Nordstrom should be as much on the cutting edge in merchandise as it is in customer service," said Todd Slater, an analyst at Lazard Freres.
Analysts said it is also making efforts to improve its operations, including adding computer systems.
Pub Date: 8/10/96