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Nordstrom's strong sales performance was a bright spot among the otherwise lackluster department store set in the first quarter, causing its shares to tick higher on Friday. But a rare hiccup at its off-price Rack division—a key driver of sales over the past few years, and a major part of its expansion plans moving forward—dampened excitement.
After two and a half years of outpacing same-store sales growth at the company's full-price department stores, Rack's comparable sales dipped 0.2 percent in the period, down from 6.4 percent growth the prior year. ( Tweet this. ) In another reversal of trends, its traditional stores posted an 0.5 percent gain, compared to a decline of 1.9 percent one year ago.
When adding in revenue comparisons for Nordstrom.com, the retailer's overall same-store sales results increased by 4.4 percent in the quarter, outpacing peers including Macy's, Kohl's and J.C. Penney. The company does not yet include sales comparisons for its Rack website, which launched in second quarter 2014.
Nordstrom did not elaborate on reasons for the shortfall on a call with investors, saying it views the weakness as temporary. Co-president Blake Nordstrom added that trends picked up toward the end of the quarter, saying he and the team "feel good about our Rack business." It's something investors will be watching closely, as the firm plans to nearly double its Rack footprint to 300 stores by 2020.
Nordstrom launched its first Rack location in Seattle more than 40 years ago, as a way to clear out excess inventory from its full-line stores. But as savvy consumers' appetite for high-fashion at a bargain grew—both during and following the recession—so, too, did the secondary brand's store count. As of May 2, the number of Rack stores outnumbered its traditional U.S. locations 177 to 116.
Despite the setback, Stifel Nicolaus analyst Richad Jaffe wrote in a note to investors that given the brand's success and higher operating margin, "Continued expansion of the Rack operation makes sense."
The off-price segment itself continues to be a popular place with shoppers, with sales growth outpacing the overall apparel market and accounting for about $38 billion annually. Macy's earlier this month detailed its plans to enter the segment with its new Backstage stores, coming this fall.
Although Rack's store count outnumbers that of full-price Nordstrom shops, they only account for $831 million in sales. By comparison, Nordstrom's U.S. locations raked in $1.7 billion in the first quarter.