Ahead of the Bell: Nordstrom shares fall

NEW YORK - Shares of Nordstrom Inc. dropped Friday after the upscale department store said it had increased its provision for credit losses and issued a guidance that assumes continued "stagnant" consumer spending, at least one analyst said, perhaps disappointing investors hoping for a strong recovery in sales.

On Thursday, Nordstrom posted sales for the third quarter that beat expectations, but profit fell slightly short due to compensation costs. It raised its 2009 guidance, but investors were disappointed that the new outlook wasn't higher, said BMO Capital Markets analyst Wayne Hood. "Management's comments were guarded around a change in consumer behavior," he added.

"This guidance reflects (third-quarter) results and assumes the consumer remains stagnant," added Deutsche Bank analyst Bill Dreher.

Nordstrom shares dropped $1.46, or 4.2 percent, to $33.05 in premarket trading.

The chain expects sales at stores open at least a year, a key retail metric, to fall 6 to 7 percent for the year. That's better than the 9 to 12 percent decline expected before.

Nordstrom is also having to divert more of its cash flow to buffer against growing shopper delinquencies on its credit cards. The company increased its loan-loss reserve by $6 million, even though unemployment grew in line with the company's expectations, said KeyBanc Capital Markets analyst Edward Yruma.

Yruma did note, however, that Nordstrom's gross margin grew for the first time since the second quarter of 2007. The chain sees gross profit margin increasing slightly for the year.

Some analysts commended the chain for operating well in a tough economy. R.W. Baird analyst Erika Maschmeyer noted that Nordstrom grew margins on merchandise even as it set lower prices on clothes to appeal to a more frugal consumer. Yruma said the lower prices should propel market share gains.

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