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Kohl's, Nordstrom results deepen retail jitters

Kohl's and Nordstrom reported a surprise fall in quarterly comparable sales on Thursday, highlighting the malaise in the department store sector as consumers pull back spending on apparel.

Kohl's shares closed at their lowest in seven years, while Nordstrom tumbled 17 percent in extended trading on Thursday.

Macy's, the biggest U.S. department store operator, was the first to flag the distress in the sector, when it reported on Wednesday a steeper-than-expected drop in quarterly comparable sales.

A shift in spending patterns is proving costly for U.S. department stores — shoppers are preferring to spend on big-ticket items such as electronics, homes and cars than on clothes.

Shoppers enter the Nordstrom store April 1, 2003 on Michigan Avenue in Chicago.
Scott Olson | Getty Images

Adding to the woes of department stores, the apparel market is also increasingly being dominated by online retailer and fast-fashion chains such as Forever 21 and Inditex's Zara.

"Department stores are struggling because they are based on an outdated business model that relies on bringing a number of brands into one large store," said Euromonitor analyst Tim Barrett.

"The customer of today, however, cares more about finding a variety of low-priced products and styles, not brands."

All eyes will now be on J.C. Penney, which reports quarterly results on Friday.

Wes McDonald, Kohl's chief financial officer, was forthright in her assessment of the slump in the sector.

"They are not buying apparel. That's the simple answer," McDonald said on a call with analysts. "Until we get some more excitement in apparel, it's going to remain, in my opinion, a replenishment market."

Both Macy's and Kohl's cited weather as a factor behind weak sales. However, Kohl's, known to be the most weather-sensitive among department store operators, said macro-economic issues seemed to have dented sales more than cool temperatures.

Nordstrom, which also slashed its full-year profit forecast, said it had to resort to heavy discounts to clear out unsold inventory in the first quarter.

More cost-cutting

The dismal first-quarter showing will accelerate cost-cutting efforts across the sector.

Kohl's, which ended the quarter with 1,167 stores, said it plans to shut 18 stores this year as it looks to meet its profit target for the full year.

The company also said it was experiencing significant labor costs due to wage increases.

Nordstrom said in April it was expecting to reduce about 350 to 400 positions to generate savings.

Kohl's same-store sales fell 3.9 percent, compared with the 0.4 percent growth analysts on average had expected, according to research firm Consensus Metrix.

Excluding items, the company earned 31 cents per share. Sales fell for the first time in six quarters, declining 3.7 percent to $3.97 billion.

Nordstrom's net income fell by nearly two-thirds to $46 million in the first quarter ended April 30.

Sales at Nordstrom stores open at least a year fell 1.7 percent. Analysts had expected sales to remain flat.